AALEP'S PREDICTIONS FOR 2012

The following are AALEP's predictions for 2012.

1. Unfortunately the Eurozone will suffer through a recession in 2012- a mild one if the sovereign-debt problems are resolved, or a deep one if they are not. Fiscal austerity is in full swing, bank credit is tightening, and confidence is plummeting. With few exceptions, the Eurozone economies will see negative growth next year, with the region as a whole contracting by about 0.7%- at best. Possible though unlikely, is a much worse recession triggered by messy sovereign defaults or euro exits. If the recession is mild and China does not experience a hard landing, the world growth will decelerate to around 2.7% in 2012. On the other hand, if the recession in Europe is much deeper or the slowdown in China more pronounced, then the global economy will be headed for much weaker growth and possibly another recession.

2. The US $ will likely appreciate against the euro in the near term- as long as the Eurozone crisis drags on- rising to around $ 1.25 by next spring. If the Eurozone suffers a financial metltdown, the euro could easily go to parity against the U.S. $ and in such a scenario, the dollar would likely rise against most currencies.

3. Asia will continue to outpace the rest of the world. While Asia will not be immune to a recession in the Eurozone, growth in the Asian region will remain resilient and will continue to be the strongest in the world (around 5.5%), for a number of reasons. Japan's post-earthquake rebound will help underpin the region's exports, offsetting some of the weakness in sales to Europe. Chinese growth can be expected to hold up at around 8% and further bolster Asian growth prospects- provided China's housing downturn does not evolve into something much worse. Last but not least, easing inflation will give all Asian governments more leeway to stimulate, if necessary.

4. Growth in other emerging markets will hold up, for the most part. The Eurozone crisis and recession will have a different impact on the rest of the emerging world. Hardest hit will be Emerging Europe, because Western Europe is its most important export destination and also because the region is dominated by subsidiaries of Western European banks- all of which are tightening credit. Latin America and Africa are relatively more vulnerable to the United States and China. Barring a catastrophe in either economy or another plunge in commodity prices, the growth in these regions should hold up fairly well.

5. We expect that 2012 will be the year for the BRIC countries on the local level. This will provide business opportunities for Western companies as long as they invest in local markets and create innovation hubs. One of the main reasons for this is that the BRIC countries don't have the same legacy costs so they can adopt technology more easily and more quickly. The demand for world class products in emerging economies is increasing. However, with a wide variance of requirements in existence, it will be important to ensure a certain level of compliance across the multiple local markets.

6. We will see many of the countries in the emerging economies playing a more significant role in terms of the world's decisions and political forums. However, for global economic success, businesses can't shift all focus to the BRIC countries- for issues such as unemployment, this can only be tackled by increased collaboration and investment from both sides.

7. Commodity prices will mostly move sideways. During the coming year, commodity prices are likely to get pulled down by weaker global demand- and pushed up by limited excess capacity and continuing robust growth in key economies, such as China and India. The biggest demand-side risk is the possibility of a hard landing in China. Supply-side risks are commodity-specific. In the case of oil, markets are worried about an escalation of the conflict over the Iran's nuclear weapon programme. That said, the most likely scenario is for the price of oil and other commodities to fluctuate around current levels.

8. 2012 will see businesses in Europe expand into new geographic markets, diversify their business or develop new product lines. Businesses will be taking steps to maintain liquidity, including a stronger focus on working capital, increasing efficiency, securing equity investment from strategic partners and deferring capital expenditures. Those entrepreneurs which can capitalize upon the momentum of these turbulent times, using it to make the required business improvements, with the respective focus on efficiency and performance will emerge stronger than ever.

9. 2012 will be the year when larger companies unload peripheral businesses to reduce their debt. So it will be a good year to look for buy-outs as conglomerates spin off subsidiaries. 

WISHING YOU ALL A PROSPEROUS NEW YEAR!