Emerging Markets Macroeconomic Outlook Q1 2012
Executive Summary
Developed Economies: Euro Zone on Brink of Recession, Hopes Pinned on US
Confidence in Europe's ability to avoid an economic recession and an even more serious debt crisis than the one it now faces, in early 2012, is ebbing fast. Such an outcome would quickly translate into a significant lowering of growth forecasts for developed market economies, and, to a lesser extent, emerging markets. Risk appetite is expected to remain poor in the first half of the year as financial markets await a co-ordinated, workable solution to the lingering euro-zone government debt crisis, requiring a decisive move toward fiscal union, unequivocally backed by Germany. Only then can market confidence be restored.
| Growth Forecasts for the Advanced Industrialised Economies (% change in real GDP over a year ago) |
|||
|---|---|---|---|
2010E |
2011F |
2012F |
|
| United States | 3.0 |
1.8 |
1.9 |
| Canada | 3.2 |
2.3 |
2.2 |
| Japan | 4.5 |
-0.8 |
1.9 |
| Euro area | 1.8 |
1.6 |
-0.7 |
| -Germany | 3.6 |
3.0 |
0.3 |
| -France | 1.4 |
1.6 |
-0.6 |
| -Italy | 1.2 |
0.5 |
-1.6 |
| United Kingdom | 1.8 |
0.9 |
0.5 |
| Developed markets | 2.7 |
1.4 |
0.9 |
| Emerging markets | 7.3 |
5.7 |
4.7 |
| E is estimate; F is forecast. Source: JP Morgan,December 2011 | |||
Until that time arrives, general market weakness will likely be punctuated by short-lived stockmarket rallies, while investors continue to fret about the possible collapse of the euro project. The likeliest trigger for the next phase of the deepening crisis would be a blanket downgrade of euro-zone sovereign bonds, which would strip even Germany and France of their coveted AAA credit rating, with a consequent increase in borrowing costs. Neither is it likely that the recent soft patch in global growth is over yet and the risk of a possible oil supply shock related to Iran's sabre-rattling in the Strait of Hormuz, through which an estimated one third of oil traded globally passes, cannot be dismissed lightly. Tentative signs of a recovering US economy offer the best hope for equity investors this year.
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