Health Investment & Finance

Archive of Outlook




Font Size: AAA

Mixed Outlook for 2008

This Outlook presents the IMF forecast for the global economy which is expected to continue growing in 2008 despite recent turmoil in the credit markets.

The health sector recently traded at a price-to-earnings (p-e) ratio on estimated 2008 earnings per share (EPS) of 15.1 times compared with 13.9 times for the overall market. Its p-e to projected five-year EPS growth rate (PEG ratio) of 1.2 times is above the market's PEG of 1.1 times.

The continued ageing of the population and consumer demand for quality-of-life enhancing interventions will continue to provide a positive stimulus for some parts of the sector that respond to chronic illness (medications for non infectious diseases, rehabilitation and long term care)

Furthermore, cost containment measures and introduction of universal health-care coverage will stimulate certain service delivery organizations that have specialized in cost effective interventions and managed care.

Despite such positive signals, many investors worry about how resilient the health sector will be in a weakening economy, particularly in light of several downwards pressures on the health care market such as the:†

∑†weak new product pipeline in the pharmaceutical industry;

∑†overall impact of cost containment measure introduced by Medicare and Medicaid; and

∑†political intervention by governments in the case of markedly expanded or near universal health-care coverage

IMF Economic Forecast†

The IMF expects the global economy to continue expanding in 2008 despite recent turmoil in the credit markets (see Table).

Although, global growth will slow from 5.2 percent in 2007 to 4.8 percent in 2008, sound underlying fundamentals should keep the global economy on course.

Emerging market economies will be the main engine for this growth, with growth in China (10.0), India (8.4) and Africa (6.5) outpacing weak performance in the US (1.9 percent), Euro zone (2.1 percent) and Japan (1.7 percent).

IMF Projections

Downside Market Risks

There a number of factors other than the recent turbulent credit markets that could have a negative influence on overall economic performance and markets in 2008:

∑†credit availability may remain tight as lenders tighten standards despite other measure to ease such pressures;

∑†housing market values may end up with a sharper downturn than expected despite recent optimistic valuations;

∑†turbulence in global financial markets could disrupt capital flows to emerging markets and trigger problems in domestic markets;

∑†several inflationary pressures loom on the horizon including rising;

∑†dwindling spare capacity, continuing high oil prices, and still strong foreign exchange inflows;

∑†supply shocks and continued geopolitical turmoil could lead to further oil price spikes;

∑†persistent and large global current account imbalances also create worrisome downside risks (deficit in the US and large surplus in China);

∑†a disorderly depreciation of the U.S. dollar would have severe repercussions throughout global financial markets; and

∑†sustained trade imbalances could prompt rising protectionist pressures.

Contact details

Alexander S. Preker

Health Investment & Financing
14 Wall Street, 20th Floor
New York, NY
United States of America

Office: 1 (212) 348-1866
Cell: 1 (202) 667-8286
Fax: 1 (212) 348-2866

Join in the Analysis

We welcome your views on this Outlook.

EMail Us

  January 01, 2008