Global Economy Poised for Uneven Regional Growth in 2012

As challenges to the global economy intensify, regional growth is likely to diverge next year. During 2012, we expect stronger gross domestic product (GDP) growth in Japan and the US, while economic growth in many European countries is likely to decelerate sharply or even contract a bit.  

Europe is the epicenter of global weakness. We now expect the European economy as a whole to contract modestly (by 0.1%) in 2012. This change in our view on Europe prompted us to reduce our estimates of global GDP growth to 2.8% for 2011 and 2.8% for 2012.

Uncertainty about the policy response to the sovereign-debt crisis in Europe has also created greater risk around forecasts for other countries, given the linkages between financial markets and global trade. For example, the recent collapse in commodity prices has raised questions about growth trends in many emerging markets, as well commodity-centric economies such as Australia. Recession in Europe would also spell trouble for countries with significant exports to Europe, such as the US and China.

As regional growth rates diverge, investors should be on the lookout for greater disparities in interest rates and currencies; we would expect the US  dollar to strengthen a bit, especially relative to the euro.   

We have shaved our 2012 forecast for Japan again, this time to 2.7%, because of the gloomy global outlook. Nonetheless, post-earthquake reconstruction spending should help underpin Japanese growth next year.

Elsewhere in Asia, it looks like there’s ample domestic demand and policy flexibility to sustain solid growth. We expect the region’s GDP growth to slow to 6.7%  in 2012 from 7.4% this year, with growth in China and India moderating. The good news is that my colleagues in Asia do not think that China is in for a hard landing, although a slowdown to about 8% next year would represent a continued deceleration in GDP growth. Excluding China and India, growth in the more export-driven countries in the region is expected to decelerate to a relatively sluggish 3.7% next year.

As for the US, I’m relatively bullish because there are signs of improvement that should help support a modest recovery in domestic demand growth. The recent easing of commodity prices has helped subdue a substantial headwind that prevented a transition to a more norma lUS growth cycle and bolstered domestic spending. 

The much improved financial positions of consumers, businesses and banks, along with the reduction in the housing overhang, has created conditions for a more normal economic cycle in the US than we have seen since the recovery started in mid-2009. Assuming that disaster is averted in Europe, we believe that the US is capable of surprising the markets with GDP growth of 3% in 2012.

The views expressed herein do not constitute research, investment advice or trade recommendations, and do not necessarily represent the views of all AllianceBernstein portfolio-management teams.

Joseph G. Carson is US Economist and Director of Global Economic Research at AllianceBernstein.

Joseph G. Carson

Joseph G. Carson joined AB in 2001. He oversees the Gobal Economic Research group, which provides economic analysis for the firm, and has primary responsibility for economic and interest-rate analysis of the US. Previously, he was chief economist of the Americas for UBS Warburg . Over the years, he has also served as the chief US economist at Deutsche Bank, as chief economist at Chemical Bank and Dean Witter, and as senior economist at Merrill Lynch. Carson began his professional career in 1977 as a staff economist in the US Department of Commerce and represented the department at the Council on Wage and Price Stability during President Carter’s voluntary wage and price guidelines program. Early in his career, he also held a variety of roles at General Motors. Carson was named to the Institutional Investor All-Star Team for Fixed Income while at Deutsche Bank, He received his BA and MA from Youngstown State University and did his PhD coursework at George Washington University. Location: New York

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