US GDP Figure Brings Cheer - Gartmore Sub-adviser Marsico

The latest US Gross Domestic Product (GDP) figure revealing an annual rate of 0.6% in the first quarter of 2008 belies talk of recession, according to Cory Gilchrist, manager of Gartmore Investment Management's US Opportunities Fund and the Gartmore SICAV US Opportunities Fund.

"While the statistic shows considerable slowdown in the US economy and is anaemic, at least it does not meet what economists would classically define as a recession," he added. "Equally, we note that, while employment has been weakening (an element of seasonality), the figures have not come near to suggesting recession conditions." Some analysts had predicted that GDP would weaken more, possibly slowing to a pace of just 0.5%.

Of late, US consumers have been assailed by constant talk of a recession and this has had a corrosive impact on confidence, acknowledged Cory. "In our view, fundamentals are sound and the authorities, both fiscal and administrative, have put in place the measures for a recovery." With its latest rate cut to 2%, the Federal Reserve dropped its explicit reference to the ‘downside risks' to growth, suggesting a pause in its rate cutting, he noted. This is a potentially welcome signal, signposting that the worst might have passed. Another welcome portent is that the Chicago Board Options Exchange (CBOE) Volatility Index (VIX) - widely referred to as the equity market's fear gauge - is at its lowest since December. There is also a sense that market participants are once again beginning to focus on fundamentals, putting to one side fears about the US economy and a financial sector meltdown, he observed.