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Global 2012 Economic Outlook Hinges On Europe

Economists seem to agree that global growth in 2012 hangs on the fate of one particular continent.

What happens in Europe will determine much of the world economy’s health, according to economists from the Wells Fargo Economics Group, and NACM Economist Chris Kuehl, PhD. Both Wells Fargo and Kuehl presented their predictions in separate teleconferences, and while issues with Asia, inflation and elections were also hot topics, the biggest threat to growth was the euro zone.

“It’s not a 2009 unless Europe blows up,” said Wells Fargo Global Economist Jay Bryson, PhD. “Everything is predicated on Europe not blowing up.”

Wells Fargo Chief Economist John Silvia, PhD agreed with his colleague, noting that “the primary risk to forecast will be the question on European sovereign debt, and what it entails for borrowing around the world.” Kuehl, in his FCIB teleconference, noted that the crisis has already caused a second round of tightening among European banks and businesses. “The credit crisis has begun again in Europe,” said Kuehl. “It’s not as nasty as it was in 2008, but you’re seeing a slowdown. It’s gone back to a period where no one really has a good sense of where this conversation is going to go, and probably won’t have until the middle of next year.”

How much this lingering uncertainty and possible collapse will affect the U.S., however, remains to be seen. “We don’t have a lot of exposure to Greek debt,” said Kuehl, referring to the euro zone country closest to the brink of collapse. “France is probably the most exposed when it comes to the private sector. Germany is the most exposed when it comes to the government. Once you get past Germany and France the exposure begins to deteriorate quickly and as far as the U.S. is concerned, it’s relatively small,” noted, cautioning still that, “we are exposed indirectly because U.S. institutions are tightly connected to those in France and Germany.”

This being the case, growth in the U.S. is expected to be positive, but still on the small side.  “We do expect the U.S. economy to expand by 2%,” said Silvia. “With this subpar economic level, we have modest inflation levels, and I think the Fed funds rate will stay the same until 2013.” Bryson agreed, noting that “It’s an average sort of year. Then, in 2013, we come back.”

Jacob Barron, CICP, NACM staff writer