Irish Life Investment Managers (ILIM) is taking an optimistic view of the prospects for world stock markets, suggesting investors will see stronger returns over the rest of this year.

In a new report, ILIM's head of asset allocation, Mr Eugene Kiernan, suggests that a stronger performance in the US economy will underpin global stock market growth in the second half of 2003, helping investors to build on the good recovery in the second quarter.

"We believe that the combination of lower interest rates, lower taxes and a lower dollar can see US economic growth moving towards 3 per cent in the second half and this should underpin US company profits."

He expects US firms will deliver profit growth of 8-10 per cent for the year as a whole.

In terms of the Irish market, Mr Kiernan says he expects the Irish economy to grow 2-3 per cent but warns that the weaker dollar may impact on profit growth.

"We have seen aggregate earnings forecasts for the market as a whole scaled back but this, in many cases, reflects the impact of the US dollar on stocks such as CRH and AIB. The net result of all this is that we are likely to see quite low profits growth for the ISEQ Index this year, perhaps in the order of 2-3 per cent."

Across the euro zone, Mr Kiernan believes that growth will continue to be sluggish and will expand at less than 1 per cent.

"Lower taxes, lower import prices and lower interest rates should boost real incomes while European companies can grow their profits through cost-cutting and the elimination of loss making businesses."

ILIM is expecting profit growth in the euro zone in the order of 6-8 per cent, according to the report.

It does not expect as strong a recovery in the UK stock market in the second half, partly because the UK market did not suffer as badly as other markets in 2002. It will also be hampered because of a possible reduced appetite for equities in the light of potential pension fund shortfalls.

Overall, ILIM believes that investors will see much stronger returns over the rest of this year from the equity markets.

"We believe there is more to go for in the second half of the year and we believe that equity markets can deliver returns in line with the underlying growth in profits. We see the markets finishing the year at higher levels," Mr Kiernan says.