The firm warns if a credit crunch develops however, 2008 might see a much weaker output and profit growth than expected and suggests “this scenario cannot be easily dismissed”.
Henderson Global Investors director of economics and strategy Tony Dolphin says the Federal Reserve’s rate cut last week was clearly meant to calm markets.
He says: “The actions by the Fed on Friday were a first step in addressing these issues and the markets reacted positively. However, given the potential scale of the problems, further interventions by the Fed may be necessary.
“The Fed also noted in its press release that it ‘judges that the downside risks to growth have increased appreciably’, indicating that slower growth may now be more concern to it than higher inflation.”