World economy 'to trudge on in 2012'
London, December 27, 2011
Europe faces another year of dismal economic performance in 2012 that will weigh on global growth, but emerging markets and the US should at least keep the world economy moving in the right direction.
There are several reasons why next year may be nothing to look forward to, according to Reuters polls from the last few months.
Many of the world's biggest developed economies are heading into recession, global stock markets look set to recoup only a fraction of their heavy losses in 2011, oil prices will head lower, and asset managers are unsure where best to invest. And these could be the best-case scenarios.
Most economists base their assumptions on the hope that the euro zone's sovereign debt crisis will not boil over into a new global economic crisis, having already dented growth in major exporters to Europe.
Still, most of the major emerging market economies like Brazil and China should pick up speed later next year. All of them have suffered from slowing economies in recent months, caused mainly by tightening monetary policy in the face of high inflation.
'It's important to stress the world economy is still growing. But it's a tale of two worlds,' said Gerard Lyons, chief economist at Standard Chartered Bank.
'The storyline for 2012 is that Europe drags the world down in the first half of the year, and China drags it up in the second half of the year.'
Enormous political risks cloud the outlook further, with elections and leadership changes in the most powerful countries and the prospect of continuing turmoil in the Middle East.
Still, there are glimmers of hope. The United States' economy has performed better than most had hoped over the last quarter, and Reuters' polls of economists show it growing around 2.2 percent in 2012, compared with zero growth in the euro zone.
'The big unknown in Europe and the US is that big companies, with balance sheets in good shape, have the ability to invest at home if they want. It's more likely that will take place in the U.S. rather than Europe,' said Lyons.
European Union leaders took a historic step towards greater fiscal integration earlier in December, but economists have been clear that this would not ease a debt crisis entering its third year and still hogging the headlines in 2012.
Reuters polls show real concern that leaders are doing far too little to stimulate growth, with the likes of Spain and Italy destined for long and painful recessions.
The euro zone as a whole, meanwhile, is probably in a moderate recession right now that will last midway into 2012. 'The euro area continues to be a source of economic and financial instability for the rest of the world,' said Juan Perez-Campanero, economist at Santander, in a research note.
'We could be facing a more permanent and lasting decline in growth capacity in developed economies and, particularly, the euro area.'
Whether Spain and Italy will need to seek funding from the euro zone's bailout facility next year is open to question, with a very slim majority of economists polled this month - 27 out of 56 - saying not.
And a November survey of 20 top economists and former policymakers in academia and respected research institutes showed 14 of them do not expect the euro zone to survive in its current form.
Even in Japan, where economists have downgraded growth forecasts relentlessly, the economy is expected to pick up in the fiscal year from April and expand 1.8 percent. Japan should narrowly avoid a recession, but polls show little hope it will emerge from deflation any time soon.
The severe uncertainty surrounding 2012 is perhaps best reflected by Reuters' asset allocation poll of more than 50 leading investment houses in the United States, Europe and Japan.
Investors raised their cash balance to the highest in a year in December as they prepared for a jittery 2012, although they also moved back into cheap equities, Reuters polls showed on Monday. - Reuters