It now looks as though 2012 will be the year when the euro starts to break up. It is not a done deal and the CEBR is forecasting only a 60 percent probability of it happening. Its forecast for European markets is nevertheless that by the end of the year, at least, one country (and probably more) will leave the monetary union. The organisation has revised its forecast on the probability of an eventual breakup of the eurozone within the next decade from an 80 to 90 percent chance.Reuters
It now looks as though 2012 will be the year when the euro starts to break up. It is not a done deal and the CEBR is forecasting only a 60 percent probability of it happening. Its forecast for European markets is nevertheless that by the end of the year, at least, one country (and probably more) will leave the monetary union. The organisation has revised its forecast on the probability of an eventual breakup of the eurozone within the next decade from an 80 to 90 percent chance.ReutersA modest to severe recession is forecast in the West, with the possible exclusion of the United States. Depending on how the euro is managed, European GDP will decline between 0.6 percent and 2 percent. The UK will also probably hit a temporary recession, which may be taking place as we pass from the fourth quarter of 2011 to the first quarter of 2012.ReutersThe CEBR expects inflation to fall sharply in 2012. It admits that it got this badly wrong in 2011 but said the 'laws of economic gravity' eventually tend to work out as expected and the most difficult aspect of the situation is getting the timing right. It anticipates the consumer price index will drop to 1 percent in the second half of the year if public sector charges and public utility price rises are not excessive. It also expects lower commodity prices, which will have a strong effect on food and petrol prices.ReutersThe United States used to be the Western economic star, but with growth hovering around 2 percent there will not be much to crow about. The CEBR predicts two factors will drive US growth: the strength of profitability and the application of technology, which will start to make a serious difference over the course of the year. The US has huge economic strengths in economies of scale and the online world plays to these strengths.ReutersTwo special events will take place in the UK in 2012: the Queen's Diamond Jubilee and the Olympic Games. The CEBR anticipates that the former will be a huge success, while the latter may be something of a disappointment.ReutersThe CEBR foresees cracks starting to appear in the Asian economic and political success story, with growth slowing down to just over 7 percent in China and to 6 percent in India. The organisation says the Asian economic and political systems are like a bicycle that has to move at a certain speed to remain stable and even modest slowdowns are likely to lead to popular discontent.ReutersThe Olympics will almost certainly reduce London's GDP since the Olympic tourists will largely crowd out those who would have come otherwise and traffic is likely to come to a standstill at times, according to the CEBR.ReutersManchester United is predicted to win the Premier League again, though it is not as much of a certainty as last year. Wales is also expected to wrap up the RBS Six Nations tournament and England "should" easily beat the West Indies at cricket, though South Africa will be a bit trickier. The CEBR further expects Spain to walk away with the Euro 2012 trophy and England to do well at the Olympics.ReutersIt is going to be another tough year for UK households. Whereas the squeeze in 2011 came from increased costs as a result of commodity price hikes and the rise in VAT, the squeeze in 2012 is likely to come from reduced income growth. The CEBR anticipates that pay will largely be frozen and that average earnings will increase less than 2 percent. Unemployment is also likely to rise sharply, as firms replan their hiring strategies in light of an extended downturn, and benefits are likely to remain about the same.ReutersFrench and German banking systems will be bailed out to compensate for the writedowns on their soverign debts, while many other European banks will return to crisis mode, according to the CEBR.Reuters
A firm of economic forecasters, which successfully predicted that Greece and Italy would default on their debts, is confident that its 2012 forecasts are just as accurate.
The Centre for Economics and Business Research, flush with correctly anticipating 2011's eurozone crisis and the slowdown in UK growth, has published 10 predictions for 2012.
If the new set of forecasts come anywhere near the truth then we are all in for a rough ride.
