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AMP: looks on the bright side of the credit crisis

16th May 2008
By David Lalich

AMP expects lower profits for the year on the back of the credit crisis.

AMP has announced that its earnings growth for 2008 is likely to be lower as a result of the global credit crisis. Although the Australian wealth manager agreed with several other banks that the worst of the crisis is likely to be over, Datamonitor feels that financial institutions in Australia should be cautious over the next 12 months as some of the world's leading economies slow down.

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AMP conceded in its first annual general meeting with new chief executive Craig Dunn that its profits would be lower for the year as a consequence of the global credit crisis and poor stock market conditions. The leading Australian wealth manager also announced that the worst of the credit crunch was likely to have occurred and that the equities markets would be expected to trend upwards heading towards year-end 2008.

Over the last two weeks, several other large Australian banks, including CBA and Westpac, have made similar announcements, namely that the worst of the credit crisis has past.

At the meeting, Mr Dunn stated that delivering earnings growth in the short term would be challenging, but that he expected stock markets to start recovering towards the end of this year and to continue rising into 2009.

Despite many of Australia's leading financial institutions declaring that the worst of the credit crunch is over, Datamonitor suggests that firms remain cautious over the next 12 months, with investment markets likely to remain volatile in the short term; while Australia is relying heavily on China for its economic growth.

The Bank of England, the UK's central bank, recently warned that the UK may follow the US into a recession as economic growth slows and inflation pressure builds. Australia's central bank, the Reserve Bank of Australia, is currently attempting to dampen inflation with several recent interest rate rises while the economy has been booming.

Australia's growth has been largely fueled by rising commodity prices driven by China's demand for local resources. While Australia appears to be running counter-cyclically to the global economy at the moment, any decline from its major trading partner in the near future is likely to have a significant effect because the rest of the world will be going through a market downturn. Under the current conditions, it is now the case that if China sneezes then Australia may catch a cold.
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