Economic Forecasts 2012

The global economy faces continued difficulties in 2012. However, with the global economic slowdown, oil prices are unlikely to rise, therefore there may be a relief from rising cost-push inflation factors.

UK in 2012

The UK economy has experienced 4 years of disappointing economic growth. In 2012, there is a mixture of forecasts on prospects of a double-dip recession. Official forecasts (Bank of England, OBR) predict sluggish growth of 0.7%. Other forecasters are less hopeful, expecting a double dip recession in the first half of the year. Reasons for double dip recession in UK include

• Government spending cuts
• Rise in unemployment to over 2.6 million
• Fall in living standards from rising cost of living and weak wage inflation
• Continued credit crunch and reluctance of banks to lend

Goods news for the UK in 2012, will be the fall in inflation, which gives scope for possible more monetary easing.

More:

• UK economic forecasts
• Interest rate forecasts

UK bonds have also escaped the pressure felt by Eurozone economies.

However, the disappointing growth will lead to lower than expected tax revenues and therefore higher government borrowing.

China in 2012

China has enjoyed two decades of constant and rapid economic growth, however in recent months there have been increasing signs of overheating. China faces problems of

• Unregulated bank lending
• Boom and bust in housing market
• Growing inflation.

There is a risk that China could experience a bust in the property market like that of Europe and US. A downturn in China would add to the economic gloom and lead to lower economic growth.

Eurozone in 2012

The Eurozone is likely to face a recession in 2012. Throughout the Eurozone there has been spending cuts and drive to austerity. HOwever, there has been no offsetting monetary easing or depreciation in the exchange rate. In Q3 2011, Ireland faced one of its biggest drops in GDP

Rising Bond yields in EU cause fear for future of EU economy - increasing need for spending cuts, but no policies to increase growth.

The Dollar in 2012

The US dollar could be one of the stronger currencies in 2012. The US is likely to recover earlier than the Eurozone. Compared to the Eurozone, US bonds look relatively secure. Given all problems in Eurozone, investors are likely to prefer the 'relative' security of the US and the fact the Federal Reserve can act as lender of last resort.