The global economy in 2012 will likely remain in a so-called "Great Idle," with slow, positive growth and an economic crisis avoided, according to Russ Koesterich, Global Chief Investment Strategist for BlackRock's (NYSE: BLK) iShares business.
BlackRock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. iShares is a global leader in exchange traded funds with over 460 funds globally across equities, fixed income and commodities, trading on 19 exchanges worldwide.
Koesterich assigns a 55% to 60% probability to a "Great Idle" scenario. However, the odds of another global recession – the result of policy mistakes in Europe as well as in the U.S. – have risen in recent months and Europe could experience at least a mild recession.
"The good news — which has been largely ignored recently— is that in the absence of a European meltdown, most of the global economy has been improving," he said. "The most recent measures indicate that growth in the U.S., other developed countries and emerging markets is stabilizing, albeit at a below trend level."
At the same time, Koesterich puts the chances of a global recession next year at 35% to 40%, compared with just 20% last year. "While U.S. economic data has stabilized, political paralysis in Europe continues to be a major risk factor, threatening not just Europe but also the broader global economy," he said.
He sees just a 5% chance that the world will return to stronger growth next year, largely because of the near-certainty that Europe will slide into negative territory.
"Even if Europe can avoid a sovereign debt collapse, the deleveraging by the European banking system is likely to produce at least a mild recession in 2012," he said.
In other parts of the world, growth should be better, but still below trend. The U.S. economy is likely to grow approximately 1.75% to 2.50%, an improvement over 2011 and in line with average growth rates from the last decade. Smaller developed markets, such as Canada, Australia, Singapore, Switzerland, and Hong Kong (the CASSH markets), are expected to grow significantly faster, along with most emerging markets.
Japan is likely to be the fastest growing of the major economies, given reconstruction from last year's earthquake and the Japanese banking system's relative stability.
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