We're about to experience a fairly major shift in the world economic cycle as the overheated US market falls back from its highs, Japan stages a big economic recovery and drags the rest of Asia with it, and European markets continue to improve.

That's the quick summary from British-based economist Andrew Hunt, speaking in Wellington yesterday. However, he expects the US bubble to only go down slowly, so that there'll be a period over the next year or so when all those large economies are growing.

Hunt, chief economist for Dresdner RCM Global Investors, was speaking to a grouping of unitholders and advisers as part of a three-city tour of New Zealand. Dresdner took over the Jardine Fleming funds earlier this year.

In a presentation he billed as around the world in 18 minutes rather than 80 days, Hunt noted that:

• There's been a fair amount of hype about the US economy and, unlike previous cycles, inflation is down as demand rises. Dresdner attributes that to falling import prices on the back of the Asian crisis, so that the US has had "a free ride on the back of Asia". However, Hunt said it hadn't been completely for free as he predicted the US current account deficit would run at about 4.5 per cent of GDP next year.

• Although the market is near its peak, he said the US bubble would deflate slowly as the Federal Reserve would be extremely cautious on interest rates. "There are 130 million share-owning Americans - and it's election year!"

• Hunt said it didn't seem to be acknowledged yet that the Japanese economy was in recovery after ten years of under-performance" but just look at the evidence". He said Japan was now producing eight per cent more than at the beginning of the year, corporate cashflow had improved in the past three months and there had been a phenomenal rise of two per cent in the number of people employed.

• The implications for the rest of the world are that Japan is now absorbing its own goods and had less need to export, so export prices are up. That's good news for markets such as Germany, which compete with Japan and can therefore raise its own prices, and that flows through to a stronger Euro.