Stocks worldwide will weather a surge in U.S. subprime loan defaults because earnings growth and a robust labor market are enough to sustain the world's largest economy, according to Credit Suisse Group.
By Alexis Xydias
March 15 (Bloomberg) -- Stocks worldwide will weather a surge in U.S. subprime loan defaults because earnings growth and a robust labor market are enough to sustain the world's largest economy, according to Credit Suisse Group.
``The key to whether or not fears of an economic recession and a far more severe correction in equity markets materialize rests on the shape of the labor market and the corporate sector, and here we are more optimistic,'' wrote a team of strategists at Switzerland's second-biggest bank, in a note to investors dated yesterday.
Stocks this week have dropped worldwide after a report showed U.S. mortgage delinquencies rose to a four-year high, fueling concern a home-loan crisis may spread across the economy. Subprime loans cater to people with the poorest credit records.
Credit Suisse economists estimate that a downturn in the subprime market and tighter lending requirements may cause a decline in housing starts of as much as 45 percent from a peak in a 12-month period, according to the note. A drop in housing demand could shave as much as 1.5 percentage points from U.S. gross domestic product, the brokerage forecast.
More than offsetting the problems in the credit market, reports have shown stable corporate output and consumer confidence, and inflation is ``not an issue,'' the note said. Economic growth outside the U.S. ``is looking very robust,'' it added.
Andrew Garthwaite, Credit Suisse's global strategist, and Jonathan Morton and Arbin Sherchan, New-York based strategists, wrote the report. No one was immediately available to comment.
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