Markets should be poised for a 5 percent correction from their current levels as the global economy remains choked by the ongoing euro zone debt crisis and the rising oil prices pose a threat, a CEO told CNBC Tuesday.
“We’ll see at least a 5 percent correction. The domestic economy is not in as good a shape as it was mid last year, the earnings estimates have been ratcheted down. The market needs a rest, it’s tired,” Michael Crofton, CEO at asset manager Philadelphia Trust Company, said.
He added that Europe remains in trouble through self-imposed austerity and credit contractions.
“Europe is in a hole, it’s going to be very hard to dig themselves out of it, particularly with the austerity imposed on it by the ECB (European Central Bank) and the IMF (International Monetary Fund).
However, Ken Wattret, Chief Eurozone Economist at BNP Paribas, said that the euro area could see some small growth later this year – propelled largely by the German economy which looks to be growing again.
“It’s reasonable to have some growth, the best we can hope for is a modest increase in GDP after the first quarter,” Wattret said.
He admitted that the periphery euro zone countries – Italy, Spain, Portugal and Ireland – would “remain in very difficult circumstances in the foreseeable future”.
“Maybe now we’re set for some corrections, but I feel that things are in a better state this year in terms of the global economic outlook than they were last year but it is going to be a hard grind to deliver any sustainable growth in domestic demand in the western world in this environment,” Wattret added.
But Crofton said that with oil still a pivotal risk to markets, growth would be difficult.
“If we get any higher gas prices here in the States then that slows down lots and lots of growth in the United States.It’s possible we’ll see $5 a gallon in spring and early summer this year,” Crofton added.