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Crimea likely won’t hurt world economy

Keywords: Tags  Russia, Ukraine, Crimea, ABN Amro Bank, Nick Kounis, global economy, steel, hot-rolled coil China

NEW YORK — Political tensions over Crimea are unlikely to cause major disruptions to the world economy, according to Nick Kounis, head of macro research at Dutch bank ABN Amro Bank NV.

“Despite the uncertainty, we think it’s unlikely that this situation will lead to any significant economic events,” Kounis told attendees at Capital Link Inc.’s eighth annual Shipping Forum in New York.

The chance of a military conflict or even economic sanctions that would impact global markets—by disrupting energy supply, for example—are slim, Kounis said, as the interdependence between the Russian and Western economies is simply too great. “Essentially, there is too much at stake for both sides,” he said.

Meanwhile, ABN Amro is bullish on the prospects for the U.S. economy this year despite a tepid start mainly due to the severe winter in many parts of the country. Based on past experience, demand tends to rebound strongly after such events, Kounis said.

Overall, “U.S. economic fundamentals are extremely strong,” he said, with profitability at its highest level since the 1950s and company and household balance sheets in robust shape. “We expect a strong rebound in U.S. economic growth over the next few quarters,” with overall gross domestic product (GDP) growth expected to reach 3.3 percent this year and 3.5 percent in 2015.

Meanwhile, the U.S. Federal Reserve is expected to be conservative in its approach to interest rate hikes, with the first increases expected by the middle of next year and with rates not rising much above 1.5 percent before the end of 2015, according to Kounis.

The world economy is expected to grow by 3.6 percent this year and 3.9 percent in 2015, with China’s GDP growth projected at 7.5 percent in 2014.

Despite these relatively bullish forecasts, pricing for oil and steel products might not see a typical up-cycle boost because “the supply side of the market is much better than in the past,” Kounis said.

Also, China’s focus on moving its economy from an investment-based model to a consumption-based one is expected to reduce commodity demand. For example, Chinese real estate investment, which has a strong correlation with iron ore prices, has “come down to a much slower growth rate and the government wants to keep it that way,” Kounis said.

Global hot-rolled coil prices are expected to average around $560 per tonne in 2014 and $540 per tonne next year compared with a spot price of $568 per tonne, according to Kounis.

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