IHS Top 10 Prediction for 2012: Another U.S. Recession Unlikely

Dec. 21, 2011
Europe not as lucky with negative growth expected in the next year.

The United States will likely avoid a double-dip recession in 2012 with economic growth expected to reach about 2%, according to IHS Global Insight Chief Economist Nariman Behravesh.

Europe's debt crisis poses the greatest threat to the U.S. economy, but the region appears to be headed for a mild recession, Behravesh wrote in his list of top-10 global economic predictions. In the long term, the United States' growing sovereign debt creates a cloudy future for the nation, Behravesh said.

The severity of the economic crisis in Europe and a slowdown in China will determine how far overall global growth will drop in 2012.World growth will decelerate slightly to 2.7% from 3% in 2011 if Europe endures a mild recession and China's housing downturn doesn't "evolve into something worse," Behravesh said.

China is looking at a potential housing-market crash because of a liquidity bubble that has created excess inventory, said Todd Lee, senior director of IHS' country intelligence service, during a Dec. 7 pricing and purchasing conference call. The Chinese housing market plays a more prominent role in the country's wealth portfolio, posing a potential negative impact on Chinese consumer demand, Lee said.

Behravesh also predicts:

  • Commodity prices will drop on weaker global demand but offset somewhat by limited excess capacity and growth in key economies, such as China and India.
  • Inflation will diminish globally as commodity and food prices stabilize.
  • Monetary policy will either be on hold or ease further.
  • Economic policy in the United States and Europe will become tighter.
  • The dollar will keep sliding except against the euro. The dollar will likely appreciate against the euro in the near term, rising to around $1.25 by next spring.
  • Most of the risks to the outlook are on the downside.

If Europe's debt problems are resolved the region will experience a mild recession. Otherwise sovereign defaults and euro exits could trigger a much more severe downturn, Behravesh says. Most Eurozone economies will contract by about 0.7% -- at best.

Emerging markets outside of Asia, including Western Europe, Latin America and Africa, should experience sustained growth.

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