BASEL (AFX) - Financial markets appear to be confident about the outlook for global economic growth and expect a 'soft landing' in the US, the Bank for International Settlements said.
'While at times sending mixed signals, markets appeared to be largely optimistic about global economic prospects and the likelihood of a soft landing for the US economy,' the BIS said in its latest quarterly review.
While the sharp downturn in the US housing market and the inversion of the US yield curve both fuelled concerns that the US economy might be heading for a recession, other indicators suggested that it will achieve a 'soft landing', a gradual slowdown without a recession.
In particular, the housing slump appears to have had a limited impact on consumption and consumer confidence, it said.
'Moreover, declining oil prices, a booming stock market and a strong corporate sector were expected to provide vital support for the economy if the situation in the housing market were to deteriorate further,' it said.
While expectations for US 2007 growth have been revised down, they remain well above recession territory, it said.
In contrast, economists have upgraded their forecasts for euro-zone growth next year.
However, the surprise stagnation of the French economy and the slowdown in euro-zone growth in the third quarter were seen as warning signs of possible negative growth surprises ahead, it said.
The BIS said the dollar's sharp fall and a string of data surprises briefly tested market optimism over the economic outlook at the end of November, but equity markets quickly recouped their initial losses.
And US equities have held up well in the face of declining growth forecasts.
'In general, US equities took consolation from the fact that the slowing of GDP growth had a much smaller effect on corporate profits than previously expected,' it said. steve.whitehouse@afxnews.com sw/wj COPYRIGHT Copyright AFX News Limited 2006. All rights reserved. The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News. AFX News and AFX Financial News Logo are registered trademarks of AFX News Limited