Europe faces another year of dismal economic performance next year 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 past few months.
Many of the biggest developed economies are heading into recession, global stock markets look set to recoup only a fraction of this year’s heavy losses, oil prices will fall 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 eurozone’s 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 US economy has performed better than most had hoped over the past quarter and Reuters’ polls of economists show it growing about 2.2 percent next year, compared with zero growth in the eurozone.
“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 US rather than Europe,” Lyons said.
EU leaders took a historic step toward greater fiscal integration earlier this month, but economists have been clear this would not ease a debt crisis entering its third year and still hogging the headlines.
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 eurozone as a whole, meanwhile, is probably in a moderate recession right now that will last midway into next year.
“The euro area continues to be a source of economic and financial instability for the rest of the world,” Juan Perez-Campanero, economist at Santander, said 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 eurozone’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.
A survey last month of 20 top economists and former policymakers in academia and respected research institutes showed 14 of them do not expect the eurozone 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.