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Global update

Most equity markets ended May in negative territory, with the global MSCI World index falling 2.5% in US dollar terms. Continued worries over Europe’s sovereign debt crisis and, in particular, mounting fears Greece might default on its debt pulled down share prices around the world. Elsewhere in the eurozone, Portugal reached an agreement on a financial bailout worth €78bn (£70bn) from the European Union and the International Monetary Fund. Portugal has to cut its deficit in stages to 3% of GDP by 2013 and will have to implement a series of austerity measures. Meanwhile, ratings agency Standard & Poor’s downgraded its outlook for Italy from “stable” to “negative”, citing concerns that any restructuring of debt in Greece might adversely affect other countries in the eurozone. Over the month, the MSCI Europe excluding UK index fell 2.8%

In the UK, meanwhile, the FTSE 100 index fell 1.3% during May. In London’s biggest-ever initial public offering , commodities broker Glencore International raised $10bn (£6.1bn) and became the first company in 25 years – and only the third company ever – to enter the FTSE 100 at admission. Across the Atlantic, the US Commerce Department confirmed growth in the US economy had slowed to a rate of 1.8% year on year during the first three months of 2011, compared with growth of 3.1% in the final quarter of 2010. Growth in consumer spending was revised down to 2.2%, fuelling concerns the country’s economic recovery might be losing momentum. The S&P 500 index fell by 1.4% and the Dow Jones Industrial Average fell by 1.9% over the course of the month as concerns about Europe’s predicament dampened investors’ confidence.

In Japan, the Nikkei 225 index fell 1.6% during May and the country toppled back into recession following March’s devastating natural disasters – the economy contracted by 0.9% during the first quarter of 2011, and by 3.7% year on year. Private consumption fell by 0.6% as households reduced their spending in the wake of the tragedy. Export activity has been badly affected by the disaster and import prices have risen sharply.

Overall, the Organisation for Economic Co-operation & Development believes the global economic recovery is “firmly underway”. Nevertheless, it warned that the global economy remains vulnerable to downside risks, including rising commodity prices, the destruction caused by the Great East Japan Earthquake, large budget deficits in some countries and the risk of an economic slowdown in China.

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