Since late 2011, global growth has subsided. It should, nonetheless, gradually reaccelerate in the emerging regions, according to Dexia Asset Management economic and financial outlook.
“Indeed, they benefit from lower agricultural commodity prices and will not hesitate to take advantage of their substantial monetary and fiscal leeway. Brazil and, more recently, China, have, in fact already initiated such policy easing,” it added.
In the United States, the recovery is on a more self-sustained path: for several months now, monthly job creations have exceeded 150,000 and nominal wages have been increasing at 4% annual rate. The moderate real GDP growth expected in 2012 (+2.3%) and the thin economic policy margins leave, nonetheless, the economy at risk … all the more so as, without a compromise between Republicans and Democrats, a major fiscal tightening (3.5 GDP points) would take place for 2013.
“Even if the uncertainty about the extent of fiscal tightening in 2013 will likely not be dissipated before the end-of-year elections, the United States should still display pragmatism and adjust the pace of the public deficit reduction to the strength of the recovery,” Anton Brender, Chief Economist at Dexia Asset Management, said.
In the euro zone, growth has clearly weakened since mid-2011 and the consequences of the simultaneous deleveraging of the private and public sectors are now becoming manifest. Far from following the American strategy, the Euro countries have, one after the other, set themselves dangerously ambitious budgetary objectives, neglecting the consequences these may have on growth: where public deficit reduction objectives have been stepped up most, activity has been severely depressed … with substantial social (and sometimes political) repercussions. If the ECB interventions – its 3-year refinancing operations in particular – were able, for a while, to halt the negative feedback loop between government bonds prices, weaker growth and the banking system, they haven’t come close to breaking it. The acute political crisis in Greece and the discussions about the country’s possible exit from the euro zone should now lead the European authorities to revise their strategy. Installing bigger and bigger firewalls will not be enough to restore either confidence or growth.
“If governments don’t want the negative feedback loop to resume, they must prevent Greece from leaving the zone and agree to slow down the pace of budgetary rebalancing for most countries.” Even if they did commit themselves to this, growth would, at best, be slightly negative in 2012 and remain perilously weak in 2013 (just under 1%). Both Anton Brender and Florence Pisani conclude that: “We haven’t seen the last of the Euro sovereign debt crisis,” Florence Pisani, economist at Dexia Asset Management, added.