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Scrutiny
 
THE WORLD ECONOMY: 2012
Summary forecast: 2012 economy
With EU, US & emerging economies in turmoil, the world is headed for yet another year of recession
Issue Date - 02/02/2012
 
Yes, Doomsday 2012 is also expected to happen sometime this year (if not already, meh!). But what would kill the world economy much sooner would be the economic doomsday that one is looking at just around the corner. According to A.R. Chowdhury, Advisor of the Federal Reserve Bank (FRB) in the US, the already thrifty global economy of 2011 that grew by 3% yoy is likely to slow down further to 2.5% in 2012.

The previous year had been marred by the Eurozone debt crisis; skyrocketing oil and food prices & rising unemployment. The European Central Bank, individual creditors and governments are running out of options as the region has already been submerged into deep recession with a likelihood of negative growth in the last quarter of FY 2011-12. The carry forward of this trend is a distinct possibility, as FRB is predicting at least a 1% decline in GDP in 2012 while Goldman Sachs has predicted a 0.8% GDP decline. Central and Eastern Europe is also expecting significant slowing down with growth pegged at 3.2% in 2012 compared to 5.3% last year. According to them, there would be a significant differentiation as China, (along with other emerging economies), would be at the top with an economic growth forecast of 8.5%, which is lower than the previous year.

While China is the number one destination for foreign investments with 2,493 deals worth $119 billion in 2011; Brazil, too, had an outstanding previous year in terms of deals and investments, which are up by 22% over the previous year. Overall, however, emerging economies are expected to slow down by 1.3% on an average and grow by 5.1% in 2012 compared to 6.4% in 2011 (The Conference Board). EM economies are particularly likely to be hit by weak external demand and the manner in which monetary tightening has affected domestic demand.

The worst performer on the other hand would be the significantly recession-hit Eurozone whose sovereign debt crisis driven by a tightening financial condition is looming large not only for themselves but for the entire world. The US would be somewhere in the middle with a modest recovery even though unemployment figures would remain high throughout the year, hovering around 9%. In this context, nations like Greece, Spain, Italy, et al would be required to take further austerity measures to meet fiscal targets. This economic crisis is likely to spread to Eastern Europe as well. The US economy, on the other hand, is facing a dearth of confidence from the private sector, which is resorting to de-leveraging and a pull back from fiscal consolidation. It is improbable that the tendency is going to change much in 2012 in fact, the trend might continue beyond 2013. Japan can be the surprise package this year, with expectations of 2.9% growth (IMF), as it rebounds from the economic degrowth following the natural calamities last year.

Overall, 2012 promises a tough time for governments with the debt crisis in Europe spiralling out of control, emerging economies slowing down as a ripple effect of the global economic winter and the US unable to take tough measures because of the impending Presidential elections. This could well be what the Mayans had in mind all along!

 

Sayan Ghosh           

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