IHS Top 10 EconomicPredictions for 2012Nariman BehraveshChief Economist, IHSDecember 2011
About Nariman Behravesh               Dr. Nariman Behravesh is Chief Economist of IHS and author of Spin-               Fr...
OverviewWorld growth will slow in 2012 – the only question is how much        • A problematic combination of private-secto...
Prediction 1:The United States Will Probably Avoid a Recession• Domestic risks have diminished somewhat and growth momentu...
Prediction 2:Europe Is Headed for a Second Dip• All forward-looking indicators suggest that Europe is headed for (or   alr...
Prediction 3:Asia Will Continue to Outpace the Rest of the World• Asia will not be immune to a Eurozone recession …• … But...
Prediction 4:Growth in Other Emerging Markets Will (Mostly) Hold Up• The Eurozone crisis will have a differential impact o...
Prediction 5:Commodity Prices Will (Mostly) Move Sideways• Commodity prices will get pulled down by weaker growth in the d...
Prediction 6:Inflation Will Diminish Almost Everywhere• With world growth softening and commodity prices off their peaks, ...
Prediction 7:Monetary Policy Will Either Be on Hold or Ease Further• Easing inflationary pressures and increasing anxiety ...
Prediction 8:Fiscal Policy Set to Tighten Further in the U.S. and Europe• Notwithstanding the policy deadlock in Washingto...
Prediction 9:With the Exception of the Euro, the Dollar Will Keep Sliding• Economic fundamentals suggest that the dollar s...
Prediction 10:Most of the Risks to the Outlook Are on the Downside• While there are many risks facing the global economy i...
Learn More!                   Download a complimentary report                   on the direction of the economy           ...
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IHS Top 10 Economic Predictions for 2012

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IHS Chief Economist, Nariman Behravesh, releases the top 10 economic predictions for 2012.

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IHS Top 10 Economic Predictions for 2012

  1. 1. IHS Top 10 EconomicPredictions for 2012Nariman BehraveshChief Economist, IHSDecember 2011
  2. 2. About Nariman Behravesh Dr. Nariman Behravesh is Chief Economist of IHS and author of Spin- Free Economics: A No-Nonsense, Nonpartisan Guide to Todays Global Economic Debates (McGraw-Hill). Directing IHS entire economic forecasting process, he is responsible for developing the economic outlook and risk analysis for the United States, Europe, Japan, China and other emerging markets. He oversees the work of over 400 professionals, located in North America, Europe, Asia, Latin America, the Middle East and Africa who cover economic, financial, and political developments in over 200 countries. Behravesh and his team have ranked among the top economic forecasters over the years in surveys by Reuters, USA Today, MarketWatch and The Wall Street Journal. Behravesh holds Ph.D. and M.A. degrees in economics from the University of Pennsylvania, and a B.Sc. from the Massachusetts Institute of Technology. He is fluent in several languages and travels regularly to Europe, Asia, Africa, and Latin America.© 2011, IHS Inc. 2
  3. 3. OverviewWorld growth will slow in 2012 – the only question is how much • A problematic combination of private-sector de-leveraging, public sector austerity, and lack of confidence in politicians is plaguing the U.S. and Europe • U.S. economy can be expected to muddle through, but Europe will not be so lucky • Meanwhile China is slowing and there is growing anxiety about a hard-landing • In the most likely scenario, world growth will slow from 3% in 2011 to around 2.7% in 2012 • A Eurozone meltdown and/or a China hard-landing will mean much weaker global growth and possibly another world recession© 2011, IHS Inc. 3
  4. 4. Prediction 1:The United States Will Probably Avoid a Recession• Domestic risks have diminished somewhat and growth momentum has picked up modestly• Consumers seem willing to spend, and businesses are more disposed to hire, albeit cautiously• This means that 2012 growth is likely to come in between 1.5% and 2%• The Eurozone sovereign-debt crisis is the biggest threat to the U.S. economy• The longer-term outlook is clouded by uncertainty over how America’s burgeoning sovereign-debt problem will be fixed© 2011, IHS Inc. 4
  5. 5. Prediction 2:Europe Is Headed for a Second Dip• All forward-looking indicators suggest that Europe is headed for (or already in) a recession …• … A mild downturn if the region’s sovereign debt problems are resolved or a deep one if they are not• Fiscal austerity is in full swing, bank credit is tightening, and confidence is plummeting• Few, if any, countries will be able to avoid negative growth• The Eurozone economy will likely contract by around 0.7%© 2011, IHS Inc. 5
  6. 6. Prediction 3:Asia Will Continue to Outpace the Rest of the World• Asia will not be immune to a Eurozone recession …• … But strong growth momentum and economic resilience will help the region grow around 5.5% in 2012• Japan’s post-earthquake rebound will help underpin the region’s exports, offsetting some of the weakness in sales to Europe• Chinese growth can be expected to hold up (7.5% to 8%), also bolstering regional growth prospects …• … Provided China’s housing downturn does not evolve into anything much worse• Last but not least, easing inflation will give all Asian governments the leeway to provide policy stimulus if necessary© 2011, IHS Inc. 6
  7. 7. Prediction 4:Growth in Other Emerging Markets Will (Mostly) Hold Up• The Eurozone crisis will have a differential impact on the rest of the emerging world• Hardest hit will be Emerging Europe, since Western Europe is its most important export destination …• … And also because the region is dominated by subsidiaries of Western European banks – all of which are tightening credit• Latin America, the Middle East and Africa are relatively more vulnerable to the United States, China and the rest of Asia• Barring a catastrophe in Asia or North America and/or another plunge in commodity prices, growth in these regions should hold up fairly well in the coming year© 2011, IHS Inc. 7
  8. 8. Prediction 5:Commodity Prices Will (Mostly) Move Sideways• Commodity prices will get pulled down by weaker growth in the developed world …• … And pushed up by limited spare capacity and continued robust growth in key emerging economies, such as India and China• The biggest demand-side risk is the possibility of a hard-landing in China• Supply-side risks are commodity-specific• In the case of oil, markets are worried about an escalation of conflict over Iran’s nuclear weapons program• Bottom line: the most likely scenario for the price of oil and other commodities is fluctuations around current levels© 2011, IHS Inc. 8
  9. 9. Prediction 6:Inflation Will Diminish Almost Everywhere• With world growth softening and commodity prices off their peaks, inflation in every region (and almost every country) will decline in 2012• The disinflationary process will be most pronounced in the developed world, because of vast amounts of excess capacity in both labor and product markets• In the emerging world, the recent declines in food prices are having the biggest impact• Without a spike in food or fuel prices – triggered by geopolitical events or bad weather – the inflation picture in 2012 will be quite benign© 2011, IHS Inc. 9
  10. 10. Prediction 7:Monetary Policy Will Either Be on Hold or Ease Further• Easing inflationary pressures and increasing anxiety about the growth outlook have changed the priorities of central banks worldwide• Central banks with policy rates already at or near zero (the Fed, Bank of England and Bank of Japan) will keep rates low indefinitely (or at least for a couple more years) …• … With further quantitative easing likely• Some central banks that had been raising rates have now stopped (e.g., the Reserve Bank of India) …• … Others that had been tightening have reversed course and are now easing (e.g. the European Central Bank and the People’s Bank of China)© 2011, IHS Inc. 10
  11. 11. Prediction 8:Fiscal Policy Set to Tighten Further in the U.S. and Europe• Notwithstanding the policy deadlock in Washington, U.S. fiscal policy is already tightening• Federal government purchases (in real terms) will contract over the next several years, acting as a major drag on growth• State and local spending is also expected to fall for at least another year• In Europe, not only are the most indebted countries (Greece, Ireland and Portugal) in the midst of tough austerity programs …• … But three of the four largest Eurozone countries (France, Italy and Spain) are being pressured to drastically cut budget deficits and sovereign-debt levels© 2011, IHS Inc. 11
  12. 12. Prediction 9:With the Exception of the Euro, the Dollar Will Keep Sliding• Economic fundamentals suggest that the dollar should keep sliding against most currencies …• … The U.S. current account deficit is still huge, and both growth and interest rate differentials favor emerging market currencies• However, as long as the Eurozone crisis drags on, the euro is likely to depreciate against the dollar – reaching around $1.25 by next spring• In a Eurozone financial meltdown scenario, the euro could easily go to parity against the Greenback – or lower• In such a scenario, the dollar would likely also rise against most currencies – as it did in the fall of 2008© 2011, IHS Inc. 12
  13. 13. Prediction 10:Most of the Risks to the Outlook Are on the Downside• While there are many risks facing the global economy in 2012, two look particularly threatening (1) The biggest risk is a “Lehman moment” in Europe with some small countries exiting the Eurozone and/or a messy default by one or more large Eurozone countries, especially Italy or Spain • Such a scenario would drag the rest of the world into recession (2) The second big risk is a sharp slowdown in China (to around 5%), triggered by a bursting of the real estate bubble • This scenario would have the biggest impact on the rest of Asia and the commodity-exporting emerging markets© 2011, IHS Inc. 13
  14. 14. Learn More! Download a complimentary report on the direction of the economy and get additional information on economic predictions from IHS© 2011, IHS Inc. 14

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