The global economy in 2012 – and beyond

THE numbers say it all. By the count of The Conference Board, a high-powered New York-based grouping of leading companies and experts from around the world, the contribution of developing economies to the 3.2-percent global growth projected next year would be more than four times that of rich countries: 2.5 vs. 0.6 percentage points.

There will be more of the same in the decade ahead. The Board’s Global Economic Outlook 2012, published in November, forecasts emerging economies to grow at twice the rate of advanced countries from 2012 to 2016. While the industrial world is tipped to turn in 1.1 percent-1.9 percent, depending on global conditions, developing nations could sprint along at 2.2 percent to 3.5 percent.

At that pace, more than half the planet’s economic production would be generated outside the West and Japan by 2020. China would be the largest economy, with 22 percent of global output, with the United States falling to second (18.2 percent), and the 15 nations of the European Union before 2004 coming in third (16.2 percent). Asia would lead the world economic steeplechase, with behemoths China and India setting a torrid pace.

What forces will underpin this reordering of the world economy, and how will the intercontinental shifts in commerce, capital and consumption affect companies? This Special Report on the Global Economy charts the turbulent years ahead, starting with the repeatedly downgraded prospects for 2012, as Europe slumps, Ame-rica stagnates, and Asia sets the pace along the bumpy road to a new global economic order.

For those who expect blaring trumpets to herald the coming dominance of Asia, think again. There will be much whining, if not gnashing of teeth, among the region’s enterprises and economies, as Europe double-dips into recession this year, and the U.S. barely escapes it, as predicted by leading economists and global institutions.

Take it from the International Monetary Fund, whose intensive-care unit has hosted many a cash-strapped country, including, for years, the Philippines. “The global economy is in a dangerous new phase,” warned the IMF in its World Economic Outlook, out last September.

Since then, Italy and the euro flirted with financial collapse, political gridlock in America torpedoed a medium-term fiscal consolidation plan, and pretty much every major economic report and forecast has downgraded growth projections for the regions and countries they rate.

In its mid-December Global Economic Forum 2012 Outlook, New York-based Morgan Stanley investment bank warns of a world recession if certain easy-to-miss policy actions are, well, missed. “Our bear case is a full-blown recession, and it won’t take much to tip the balance,” says Joachim Fels, the bank’s Global Head of Economics, based in London.

What moves is Fels watching? “Our base case assumes that European governments make a big step towards fiscal integration soon that stabilizes confidence, and that the U.S. Congress extends most of this year’s [economic] stimulus.” But even if all goes well, Fels still expects a worldwide slowdown: “With a recession in Europe, anemic growth in the U.S., and a further dimming of emerging market economies’ growth prospects as our base case, we see global growth falling below its long-term average.”

With all the bad news in the industrialized world, including Japan’s deflation, power and strong yen problems as well as the export dampening impact of the West’s economic woes, forecasts for the region’s developing economies are predictably down too. Dual headquartered in London and New York, credit analyst Fitch Ratings cut its forecast for emerging Asian economies to 6.8 percent, from 7.4 percent in June.

“The deterioration in the outlook for the world economy and the lagged impact of policy tightening in some countries, including the region’s two giants, China and India ”prompted the cut in GDP forecasts,” reported Fitch analysts led by Andrew Colquhoun, head of its Asia-Pacific sovereign credit division. Even the region’s pacesetters saw their forecasts trimmed. China is tipped to grow 8.2 percent, down from 8.5 percent previously forecast, while India slipped to 7.5 percent from 8.2 percent.

A similar prognosis emerges from the Asian Development Bank’s Asian Economic Monitor last month. The ADB report cut 2012 growth projections for East Asia’s emerging economies by nearly half a percentage point to 7.2 percent, down from its 7.5 percent revised estimate for last year and 2010’s soaring 9.4 percent. Expected to suffer the biggest drop from 2010 is the Philippines, going from 7.6 percent expansion to 4.8 percent in 2012.

Using the Oxford Economics forecasting model, the bank estimated the likely impact of three scenarios on East Asia. With the euro currency zone alone going into recession, East Asian growth would slow by 0.4 to 2 percentage points. If contraction hits both the EU and the U.S., the impact on East Asia would rise to 0.5-2.5 points off the projected rate of expansion. In the least likely event “where eurozone and U.S. GDP were to fall to 2009 levels, the impact on East Asia would be much more serious, though still less than in 2008/09,” the ADB reckons. –RICARDO SALUDO, Manila Times

(Excerpt from The CenSEI Report global economic forecast. For a free copy of the full report with video interviews, data and projections, email report@censeisolutions.com.)

Ricardo Saludo serves Bahay ng Diyos Foundation for church repair. He heads the Center for Strategy, Enterprise & Intelligence, publisher of The CenSEI Report, and was the business editor of Asiaweek magazine.