Western economies should avoid slipping into recession -- provided that politicians in America don't create another crisis in November as a congressional committee wrangles over debt reduction plans, says Robert Parker, senior adviser at Credit Suisse in London.

Parker is one of the firm's 'wise men', a researcher and strategist since the 1970s who now advises the firm's senior investment committee on global asset allocation, which guides the asset-management and private-wealth arms of the firm, as well as its partners in various markets, in terms of product selection.

His outlook is for the US and Europe to avoid slipping back into recession over the next year, despite ongoing downgrades of their economic performance. The International Monetary Fund is due to release its latest measurements on September 20 that will negatively revise US and European economic performance for 2011.

This gloom is offset, however, by better news from emerging markets. Parker notes that last week India's GDP growth was measured to be 7.7% year-on-year. He is also cheered by somewhat better-than-expected figures out of Japan.

"Our thesis remains that emerging markets such as China and India will have moderating but still good growth, and that the US and Europe will continue to experience mediocre growth but will avoid recession," Parker says.

The reasons for this (highly qualified) optimism include a moderation in the high prices for food and oil, which have hurt consumers everywhere; the rapid rebuilding of supply chains affected by the March 11 Japanese earthquake; the maintenance of easy monetary policy in the US and asset purchases by the European Central Bank and the Bank of Japan; and the sounder state of European and American banks' balance sheets, at least in comparison to mid-2008, when they were dangerously leveraged.

"In the coming months we will see a reassessment of bank risks by global investors," Parker predicts. "I think the way they have perceived the quality of assets on bank balance sheets has been far too pessimistic."

Parker expects that the frightful market drops of August will reverse in September and October. The past few months, marked by moves to cash and safe-haven assets, may ease. Parker says since May, investors worldwide have shifted $110 billion out of equity mutual funds. This leaves the corporate sector with record levels of cash: some $2 trillion globally, with US corporations accounting for $900 billion of that.

Yet that liquidity exists at a time of very easy monetary policy and negative real interest rates. "Something's got to give," Parker argues, adding that safe-haven asset valuations are now "stretched". He acknowledges assets such as US Treasuries, Swiss francs and gold may well remain overvalued for some time, but not forever.

He hopes to see better economic data from emerging markets in order to break down this log-jam. The European Union also needs to convince investors its member governments are seriously dealing with sovereign debt. The biggest risk is likely to come in November, however, when a US bipartisan committee of Congress is meant to come up with a plan to cut the national debt; or, failing that, see discretionary spending cut by $1.2 trillion.

"What happens if the US can't agree on cuts, and Fitch and Moody's then follow Standard & Poor's and downgrade the US credit rating?" Parker wonders. That would reignite downward volatility across global equity markets. "I think September and October will see risk assets trade higher, but US politics could deliver a shock."