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The Three Speeds of Economic Growth

A current concern among government leaders, economists and investors alike is inadequate and unbalanced global growth. While the world continues to face considerable challenges resulting from the 2007-2008 global financial crisis, investors who look beyond the imperfections in the global economy will notice that macro conditions in important parts of the world have been improving. As you can see in the chart below, in several regions, economies are growing. The big exception is, of course, Europe.

Looking ahead, we believe these growth trends will continue in the near-to-intermediate term. Emerging markets, in aggregate, appear to be poised to continue to grow faster than the developed world, though we expect growth to be more varied than in the recent past. And, in the developed world, we believe we will continue to see a divergence between the U.S. and Europe, with Japan’s prospects improving but highly uncertain. Unlike many, we believe there are several reasons to not count the U.S. out.

In contrast, Europe faces a long road to recovery from its ongoing debt crises and structural economic problems. Indeed, the IMF’s recent update to its 2013 growth forecasts paint a picture of a three-speed world (remember, however, that forecasts may not actually come to pass). [1. IMF World Economic Outlook, “Hopes, Realities, Risks,” April 2013.]

Importantly, what does a three-speed world mean for investors?

• From an equity perspective, we believe a globalized equity portfolio may help investors identify attractive investment opportunities regardless of where the companies may be headquartered.
• The investment implications for bond investors are more nuanced. For bond investments, we prefer countries with solid real yields, favorable demographics and manageable fiscal positions.

These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict performance of any investment. These views are as of the open of business on January 24, 2013, and are subject to change based on subsequent developments.
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RPL0000.142.0513 May 13, 2013