The world economy is expected to grow just 3.1% next year and inch ahead to 3.4% in 2013, according to according to UBS’ latest Global economic outlook report.
The Eurozone is expected to enter a double-dip recession in the first half of 2012 while the U.S. economy is expected to maintain its modest growth rate. Emerging economies are expected to slow in early 2012 with China likely to experience a soft landing.
Three major themes factored into the analysts’ expectations. Sovereign stress will hugely impact global growth in the near term. The most obvious manifestation is the financial stress visible in the massive public sector debt seen in Europe and the U.S. but extends to political and policy stress.
In Europe, this includes the threat of an imminent Greek default, concerns that Italy may not be able to “rollover its stock of private debt”, and a potential downgrade of France and the implications of such a move on the EFSF. Eurozone growth is projected at 0.2% in 2012 and is most likely to see a double-dip recession. This is in part because of the negative impact of the Eurozone crisis on credit growth.
In the U.S., Washington is supposed to put off any increase in stimulus beyond the extension of payroll tax cut. Risks for the most part involve policy failure.
The global economy is likely to see “swathes of excess capacity” — in which production capacity is below optimal levels and demand is lower than supply — is expected to be brought on by the sluggish recovery seen in developed economies. But, with inflation expected to ease in developed and emerging economies, and with lower wage costs, corporate profits are expected to be above-average in 2012 and 2013.
Finally, analysts believe that GDP growth in emerging economies will continue to be strong, especially when compared to anemic growth in developed economies, but a lot of the slowdown in developed economies is also because of policy challenges and worsening demographic trends. Emerging economies on the other hand have low levels of sovereign stress, higher savings in the private sector and higher levels of external reserves.
Don’t Miss: The 15 Fastest Growing Economies In The World >