Wellington, April 28 NZPA - The threat of a deep depression in the global economy appears to have lifted, but recovery is likely to be gradual and off a very low base, AMP Capital Investors said today.

There were signs of improvement in global economic activity, which had spiralled downward following last year's credit crisis, and the massive response from governments and central banks appeared to be creating some stability, said AMP Capital head of investment Jason Wong.

However, the reality was that economic indicators were now depressed rather than deeply depressed, and any recovery would be slow.

In New Zealand, AMP expected annual gross domestic product to hit minus 3 percent, but it would feel worse. Low dairy prices, poor terms of trade and growing unemployment would help make any recovery over the next year uneven and slow, he said.

With inflation currently out of the picture, official interest rates were likely to remain low for at least a year. They would hit a trough of around 2 percent from the current 3 percent, as the Reserve Bank tried to loosen monetary conditions which remained stubbornly tight, he said.

The Reserve Bank releases its next decision on interest rates on Thursday, forecast to be a 50-percent cut to the current 3 percent Official Cash Rate.

AMP head of New Zealand fixed interest, Grant Hassell, said the Reserve Bank was in a better position than many central banks as it had plenty of scope to cut rates to help get the currency down and loosen monetary conditions.

The New Zealand dollar appeared overvalued at current levels above US55c, and AMP forecast it to fall to around US50c.

AMP was cautiously optimistic about shares, which it considered good value compared with other assets, rather than strongly bullish because of the effect poor economic conditions would have on company performance.

The fund manager had been gradually adding to its equity portfolio and was now overweight in equities, while reducing its fixed interest exposure.

Over $850 million in capital had been raised by companies in April alone, an unusually large monthly amount, and AMP had increased its position in a number of the companies that went to market, including Freightways and Fletcher Building.

"It's very early days in the economic healing process, but for the first time in a long time we are seeing some upward revisions to global growth estimates and risk assets such as equities are responding positively to this change in trend," Mr Wong said.

AMP's managed funds were negative for the three months ended March 31, with the conservative fund down 0.9 percent, the flagship balanced fund down 3.6 percent, and the growth fund down 6.1 percent.

Annually, they returned 5.9 percent, minus 10.1 percent and minus 24 percent respectively.

Among asset classes, global fixed interest returned 2.1 percent for the quarter, cash returned 1.3 percent, and New Zealand fixed interest was flat.

New Zealand equities lost 3 percent, unhedged global equities lost 8.2 percent, hedged global equities lost 11 percent, global property lost 28.2 percent and property was up 0.9 percent. All returns were before tax.

The largest annual losses were in global property, down 60.8 percent, and hedged global equities, down 51.1 percent.

The only assets to show a positive annual return were New Zealand fixed interest, up 17.8 percent, global fixed interest, up 13.6 percent, and cash, up 8.4 percent.

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