The year 2011 was by no means an easy period, between the Arab Spring, the Fukushima disaster, the sovereign debt crisis and hesitant governance in Europe. The fragile recovery experienced in the first half came to an abrupt halt in the second and growth in world trade was halved during the year.

The deterioration is set to continue in 2012: world growth is not expected to exceed 2.7%, after 3% in 2011. Euler Hermes is forecasting sluggish growth in the first half, which could pick up in the second half with implementation of the announced parachute.

Euro zone growth is forecast at 0.3% in 2012 while growth in emerging countries is expected to slow, down to 8.1% for China (from 9.2% in 2011) with growth of 3% for Brazil (as in 2011), for example.

Differences Within The Euro Zone

The sovereign debt crisis and public deficits had a severe impact on the real economy in Europe in 2011.

Lack of visibility and limited financing of corporate and household investment expenditure will undermine the growth outlook for euro zone countries to varying degrees: from the situation in Germany, which will stay above water with growth of 0.8% in 2012 (down from 3% in 2011), to an established recession in Greece (down by 2.7% in 2012 after falling by 5.5% in 2011) in Portugal (down by 1.9% in 2012 after contracting by 1.4% in 2011) and in Italy, where the economy will contract by 0.2% in 2012 after growth of 0.5% in 2011.

“In France, GDP growth will slow to 0.4%, from 1.6% in 2011. Like in the United States, the 2012 political calendar will have an impact on activity, between pre-electoral waiting and subsequent readjustment of economic policy,” explains Euler Hermes’ Chief Economist, Ludovic Subran.

Inflation and unemployment will also be major factors for the euro zone’s balance in 2012. Inflation is forecast to slow from 2.7% in 2011 to 2.2% in 2012, contained by weaker demand and more stable commodities prices. Unemployment, however, will remain high, particularly in southern European countries.

Looking further forward to 2013, growth is forecast to pick up to 1.2%, once steps have been taken to reduce deficits and circumscribe systemic risk within the euro zone.

Cautious Optimism in the U.S.
In the United States, the recent encouraging economic indicators give some ground for cautious optimism. GDP growth is forecast at 1.8% in 2012 (1.9% in 2013) under the impact of a slowdown in household consumption. Appreciation of the dollar, which has recovered its safe-haven status given the situation in Europe, could put a brake on exports.

Companies will continue to record profits but at a more moderate pace. The Federal Reserve will pursue its policy of monetary stimulus to save the economy, but there is some concern as to the country’s fiscal orientation up to the elections in November.