Global Economic Report - December 2012

• The major advanced economies, as a group, continue to be a drag on world growth. Based on our latest forecasts, as many as five of the G7 countries will be experiencing contracting GDP by the end of 2012.
• And looking into 2013, this group will make no contribution to the stronger world growth that we forecast. The G7 group is forecast to grow by just 1.3% versus 1.4% in 2012, while emerging growth strengthens to 4.9% from 4.4%.
• Both Japan and the Eurozone are set to end 2012 in recession and recovery in 2013 is expected to be weak and heavily dependent on an upturn in world trade to offset subdued or declining domestic demand. Much the same is true of the UK. Monetary policy faces an uphill task in offsetting the fiscal squeeze in Europe and forcing down the value of the yen in Japan.
• Only in the US are significant upside risks to growth visible. There, more progress has been made in adjusting the balance sheets of banks and consumers and monetary policy has been more effective.
• Indeed, US monetary trends were improving even before the Fed restarted QE in September. The Fed’s additional asset purchases into 2013 could contribute to surprisingly strong growth by the end of the year – assuming the ‘fiscal cliff’ risk is overcome.
• In the emerging countries, Q3 and early Q4 data indicate that China’s economy is recovering from its mid-year soft patch. But there have also been disappointing GDP releases in India and in Brazil. These latter two countries see significant GDP forecast downgrades this month with 2013 growth around 0.5% lower than in November.
• These larger emergers are still set provide the lion’s share of additional GDP growth next year, partly as a result of policy easing feeding through. But some frailties have become evident in recent months, which is a matter of concern given the extent to which near-term global growth prospects rest on these countries.

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