All major developed and developing economies should be at robust, positive rates of growth into 2014 as policymakers continue with easy-money policies for the foreseeable future, although this raises fears about inflation and bonds, according to EFG Asset Management.

With the US “fiscal cliff” wrangles in the US providing a nervous start of the year for economic and market forecasters, Moz Afzal, chief investment officer at the firm, said 2013 could be the year of “Abenomics” – a term used by referring to the loose monetary policy favoured by recently-elected Shinzo Abe, prime minister of Japan.

“There is certainly more to come in 2013 on this front of innovative central bank policies. The Bank of England will get its first foreign governor in its 319-year history [Mark Carney, from Canada]. He has already hinted at a new approach, potentially abandoning the inflation-targeting regime of his predecessor and embracing, some may say returning to, a more rounded consideration of the economy and financial markets when assessing policy decisions,” Afzal said in a note.

“So, one central element of our outlook for 2013 is that central banks around the world will generally be more active and helpful in supporting economic recovery even if this means taking some risks with inflation. That, in our view, is a move which should be applauded. It does, however, have important repercussions for financial markets,” he said, noting fears about inflation and losses for bond investors.

“Although those [inflation/bond] fears are overdone, we are concerned that the major, safe government bond markets – the US, UK, Germany, Switzerland, offer very little value. They really are an example of ‘return-free risk’,” he continued.

“The back-up in yields may not come early in 2013. Central banks, with their quantitative easing policies will remain large buyers of government bonds. But we do see a much greater risk as we go through the year and into 2014,” Afzal said.

EFG Asset Management is part of EFG International's private banking group headquartered in Zurich and oversees around $7 billion of client assets.

Adjustment

Afzal said one of the most encouraging aspects about the global economy is that a lot of adjustment in the US economy – such as seen in a big fall in housing prices after 2008 – have already taken place.

“Even though it will be interrupted in early 2013 by the effects of fiscal tightening, the US recovery now seems to be on track and gaining breadth. Indeed, we expect the economy to look more robust as we move through the second half of 2013 and into 2014,” he said.

Afzal was even quite upbeat about the UK and eurozone.

“In terms of the progress with post-crisis adjustment, the UK follows pretty closely on the heels of the US. The eurozone is further behind, but two examples give some grounds for hope. In Ireland, government bond yields have fallen sharply reflecting the success of austerity measures in stabilising government finances and the current account has swung into surplus as a result of improved competitiveness,” he said.

Emerging

Afzal said China’s period of policy tightening to curb runaway growth has “run its course” and signs of a recovery are now more widespread, with the world’s second-largest economy avoiding a “hard landing”, even though growth rates are likely to decelerate.

“Reflecting unwarranted concerns about economic weakness, Chinese equities trade at rock-bottom prices. We think that 2013 will be a year in which we see a rebound in the Chinese economy and equity market and we favour that market, as well as more developed Asian markets (Taiwan and South Korea), over the ASEAN markets which are more expensively valued,” he said.

“Looking one year further ahead (we did say that one year was too short) 2014 is set to be a year in which all the major emerging and developed economies return to reasonable, positive rates of economic growth. The last time we saw that was in 2007. It would be a welcome sign that better balance had been restored to the world economy. As that prospect is recognised, later in 2013, we think it will be to the benefit of all global equity markets,” he added.