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Economic development

Forecasts for 2012 are subject to considerable uncertainty since the development of the global economy will depend heavily on how the debt crisis in the Eurozone is handled. The Ifo Institute, for example, has outlined a basic scenario for 2012 under which it is possible to calm financial markets on a lasting basis and prevent intensification of the European debt crisis. This is contingent upon appropriate efforts being made to put public finances back on a sound footing in the critical member states of the Eurozone. It is, however, far from certain that this basic scenario will materialise; numerous other scenarios are conceivable.

According to this basic scenario, a further slowdown is to be anticipated in economic expansion in 2012 on account of the growing uncertainties and the debt problems facing many industrialised nations. The financing conditions for banks and businesses on the open market are likely to deteriorate and hence considerable consumer spending and capital expenditures will be postponed. The savings drive among private households should heavily curtail private consumption in some European countries and the United States. Not only that, fiscal policy in Europe and the US alike will probably have a heavily restrictive orientation. The softening economic trend in the industrialised countries may put the brakes on growth in emerging markets. Nevertheless, with growth rates still expected to be healthy, emerging markets should again prove to be a stabilising factor for the world economy in 2012. All in all, global output is therefore likely to show only weak growth.

The US economy is initially expected to slow further, although it may then stabilise in the second half of the year. Given the protracted heavy indebtedness of private households and what is only a slow improvement in the jobless rate, private consumption will struggle to pick up. The continued restrictive fiscal policy will likely have further negative implications for domestic demand. It is also anticipated that US companies will have a reduced appetite for capital spending in 2012. The Ifo Institute forecasts growth of 1.8% in US gross domestic product for 2012.

In the Eurozone the debt crisis and a strict budgetary policy in many countries should mean that the economy will manage only weak growth overall. In this context, the differences between individual countries will likely continue to be considerable. Internal demand will in all likelihood barely rise, since public consumption will contract on account of spending cuts and private consumption will be flat as a consequence of sharp tax increases. Domestic demand is likely to be particularly soft in Italy, France and the countries on Europe’s south-eastern periphery. Only the external sector will probably deliver positive stimuli in 2012, although this will merely be a reflection of the weak import trend rather than sharp growth in exports. Although the economic gloom is forecast to lift somewhat in the second half of the year, the Ifo Institute expects gross domestic product to contract overall by 0.2% in 2012.

After an upswing over the past two years, economic activity may soften again in Germany in 2012. Key factors here are the weaker global economy and the restraining effects of the European debt crisis. The drive towards consolidation and the austerity efforts undertaken in the Eurozone will probably take a heavy toll on exports. Furthermore, equipment spending is also likely to slow. On the other hand, private consumption – which tends to lag behind cyclical developments – will be supported by the favourable state of the labour market and a still healthy income situation, hence enjoying robust growth. Contrary to many European countries, therefore, Germany is unlikely to slip into recession. The Ifo Institute forecasts an increase of 0.4% in gross domestic product in 2012.

By global standards China’s economy should continue to record above-average growth in 2012, although the pace will likely slow somewhat. Gross domestic product is expected to come in at around 8.2%, a slight contraction relative to 2011. The rebuilding efforts in Japan will serve to boost output. Japanese GDP is expected to show growth of 2.0% in 2012.


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