Oil to fall, underpinning growth: Credit Suisse

By Jeremy Gaunt, European Investment Correspondent

LONDON (Reuters) - Credit Suisse's investment arm is banking on commodity prices to fall over the rest of this year, with the price of crude oil dropping back to between $100 and $120 a barrel, one of its top executives said on Thursday.

That should allow for modest economic growth in the United States and other developed countries and be conducive to a rebound in equities and corporate credit, Bob Parker, vice chairman for asset management, told the Reuters Investment Outlook Summit in London.

"We have been taking profits on our commodity positions," he said.

Parker said there were a number of factors arguing for a pull back in the commodity price boom in general and the oil spike in particular, both of which have triggered fears of inflation and consumer spending stress.

Slowing U.S. and European economies should lower demand for oil and central banks appear to be working together to dampen commodity inflation with hawkish comments about monetary policy, he said.

In addition, Credit Suisse sees the easing of extraordinary oil demand from China.

"The Chinese have been overstockpiling oil ahead of the Olympics," Parker said. "Shipments of oil to China might come off (in July). There is an argument that the strength of stockpiling by China should now reverse somewhat."

Partly as a result of this, Parker said his firm was expecting the developed world to go through a sustained period of moderate, or mediocre growth, rather than a recession.

"We feel growth in H2 in the States into 2009 is going to be 1 to 2 percent. This year, Euroland will grow (around) 1.5 percent," he said, adding that the Japanese rate would be about the same as Europe's.

But he added that the risk was to the downside, with oil -- currently at around $132 a barrel -- being the key.

"If oil averages $150 a barrel we are looking at zero growth in the U.S.," Parker said.

CORPORATES NOT GOVERNMENT

In terms of asset allocation, Parker said Credit Suisse favored short-term investment grade corporate debt because of generally healthy company balance sheets.

It also believed that falling commodity prices should trigger a shift towards equities in those countries whose stocks have been suffering until now, including China.

"You've seen overleveraged markets and sectors underperform. If you have stabilization in commodity prices ... then you could see a base being formed and a rally starting in commodity-consuming countries," he said.  Continued...