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

Director—Global Economic Research
Joseph G. Carson joined the firm in 2001. He oversees the Economic Analysis team for AllianceBernstein Fixed Income and has primary responsibility for the economic and interest-rate analysis of the US. Previously, Carson was chief economist of the Americas for UBS Warburg, where he was primarily responsible for forecasting the US economy and interest rates. From 1996 to 1999, he was chief US economist at Deutsche Bank. While there, Carson was named to the Institutional Investor All-Star Team for Fixed Income. He began his professional career in 1977 as a staff economist for the chief economist’s office in the US Department of Commerce, where he was designated the department’s representative at the Council on Wage and Price Stability during President Carter’s voluntary wage and price guidelines program. In 1979, Carson joined General Motors as an analyst. He held a variety of roles at GM, including chief forecaster for North America and chief analyst in charge of production recommendations for the Truck Group. From 1981 to 1986, Carson served as vice president and senior economist for the Capital Markets Economics Group at Merrill Lynch. In 1986, he joined Chemical Bank; he later became its chief economist. From 1992 to 1996, Carson served as chief economist at Dean Witter, where he sat on the investment-policy and stock-selection committees. 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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