2012 ANNUS HORRIBILIS FOR THE EU

2012 will be a tough year for the Eurozone. The broad agreements to redress the debt crisis will require governments to enact additional expenditure restraint and revenue enhancement measures to cap and eventually reverse fiscal and debt imbalances, with the extent of the retrenchment dependent upon the respective countries' current budgetary situation. Second, lending by the financial institutions will be constrained by the need to bolster capital and meet more stringent requirements. And third, household caution will increasingly be reinforced by the further rise in joblessness, increased public sector retrenchment and increased efforts to pare down personal debt. Combined, these adjustments are expected to reduce euro zone growth to an average of only 0.3% in 2012. Several member nations will see consecutive quarterly contractions in output, and the EU region overall is expected to  experience a recession from now to mid-2012, followed by a gradual recovery.

Increased fiscal austerity will deepen the recessions in the most financially troubled nations of southern Europe most notably Greece and Portugal.  The severity of the compression in other highly indebted countries, Ireland for example, will be comparatively less because significant adjustments have already been undertaken to put their economic and financial conditions on a more solid footing. In Italy and Spain, increasing government cutbacks alongside further banking sector consolidation will aggravate the spreading weaknesses and virtually eliminate growth next year. Even the larger northern nations will face increasing economic headwinds, with private domestic restraint compounded by fiscal consolidation, and trade impacted by the slower pace of regional and international activity.

Forecast 2012 GDP growth: Germany (1%), France (0.6%), Italy (-0,2%), Spain (0.1%). By comparison, China will record 8.9% GDP growth, India (8.3%), Peru (5.6%), Korea (5.0%), Chile (4.8%), Brazil (4.0%), Thailand (3.5%), Japan (3.2%) and Australia (3.0%)