Fidelity International multi-asset fund manager Trevor Greetham expects global growth indicators to continue weakening in 2008, mainly led by the US economy and followed by the UK and Japan.

He believes the Anglo-Saxon part of the world is exporting threats globally as inflation rises on the back of strong oil prices. The US credit crisis, meanwhile, could take another two years to unwind, he says.

ôThat combination of slowing growth and rising inflation is causing people to talk about stagflation, which is a term really coined in the 1970s,ö he says, ôI would say that yes, it does feel like stagflation but it feels like very mild stagflation. We are not talking about UK inflation at 24% as we saw in the late 1970s.ö

China, which is expected to continue to experience strong economic growth, is among the bright spots, says Greetham, who nevertheless stresses the perils of an overheating economy.

ôPeople are still looking to China. There is certainly a very big difference between Chinese GDP growth and global GDP growth. As you know, the Chinese economy is still growing at 12%, while other economies are lucky to be growing at 2 or 3%,ö he says, emphasizing the need to tighten monetary policy to help prevent an asset bubble.

Looking at a 12-month investment horizon, Greetham is taking a defensive stance. He is overweight on cash, commodities, Asian industrials and properties, while underweight on Western properties, financials and consumer stocks.

Reflecting on the year behind, Greetham notes the consistent underperformance of financial, property and consumer stocks. ôIt didnÆt matter which direction was the market going, they were doing worse than the market.ö

He notes that energy, basic materials and telecommunications were the best performers this past year, followed by defensive consumer staples such as food, beverages, and tobaccos as well as utilities.

Contrary to the view of many US dollar bashers, Greetham says US dollar-based investors have generated outperformance from US dollar-linked economies such as Hong Kong. He estimates that global stock investors have seen about 10% returns in US dollar terms so far this year, and 15% gains from commodities.