“The global outlook remains highly uncertain; however, we are not anticipating that the global economy will enter recession, although growth will remain weak. The continued recovery in the US, supported by the improving job market and household spending, and growth in China (albeit weaker than trend) along with other emerging economies, will drive the global economy in 2012. The main constraint on global growth will be in the EU, where a number of countries are in recession, “says a just released ‘Global Outlook’ report by D&B Country Risk Services.
According to the report, downside risks remain strong. The failure to resolve the sovereign debt crisis in Europe remains a key concern, with a danger that it could still spread to the global banking sector. Furthermore, S&P’s wholesale downgrade of the EU countries in January will lead to higher interest rates for sovereigns (as well as corporates). This, in turn, will add pressure to maintaining the fiscal austerity measures that are constraining growth in the short term. Furthermore, the currency and capital markets are set to remain volatile, adding further uncertainty.
As regards Asia, and more specifically India, the report says “The US recovery will help Asia, as will the moderation in food price inflation thanks to good harvests in 2011. If there is no major shock, we expect only a slight increase in credit risk in economies with more serious imbalances such as India and Vietnam, still at risk of double-digit inflation. It goes on to say “We expect consumer non-durables, capital goods and services sectors in India (excluding outsourcing) to present higher credit risks in 2012”, adding “In most economies, healthy fiscal situations will provide room for credit growth; India and Vietnam will be exceptions, with pressures for tight fiscal policy growing.”
World View
l The euro-zone economies will experience zero growth at best collectively in 2012.
l The US and emerging markets should not experience recession.
l Downside risks include: fiscal austerity in weaker euro-zone economies reinforcing recession and lowering tax revenues; credit de-leveraging as banks protect capital and face new regulatory capital calls; and the rapidly decelerating Chinese property construction sector.
l Deteriorating: Austria, China, Egypt, Germany, Greece, India, Italy, Portugal, and Spain.
l Improving: Georgia, Honduras, Myanmar, Sierra Leone, Tunisia, UAE