Adieu 2012 and Welcome 2013
As the year end approaches we will have a review of the key developments which impacted economies and markets in 2012 and what is expected next year. In relation to the economic outlook IMF expects World economy will likely expand by 3.3% in 2012 however will rise to 3.6% in 2013.The advanced economies growth are expected to grow by 1.3% for 2012 and 1.5% for 2013.
US economy had grown up by 3.1% in the 3rd quarter of 2012 which is much more than 1.3% in the second quarter. US Federal Reserve had come with its QE (Quantitative Easing) 3 in Sept 2012 to boost growth and reduce unemployment. The US unemployment rate is at 7.7% in November 2012 and still remains high however has improved since November 2011 which was at 8.7%. The QE4 is expected to begin from January 2013. The US Fiscal cliff still looms and a solution is needed to prevent any adverse consequences such as US recession, financial market collapse or US Sovereign downgrades.
The US economy growth is expected to be 2.2 % for 2012 and further economic development next year will be contingent on fiscal cliff progress.UK economy fell into double dip recession in 2012 and has recovered however the process of recovery is still slow. Bank of England continued its easing measures in 2012. UK economy is expected to contract by -0.4% for 2012 and grow up by 1.1% for 2013.
Italy and Spain borrowing costs were brought down this year and funding planned for Greece but fiscal and banking union issues are yet to be sorted out which needs to be addressed in 2013. Greece, Italy and Spain problems can emerge any time. The German taxpayers, at some stage, are likely to be told they will lose money in Greece. Italy is having political instability and will Spain need bailout next year? Euro Zone is expected to contract by 0.4% for 2012 and grow up by 0.2% by 2013.The Japanese Yen continues to weaken after more easing measures planned by Bank of Japan .Japan economy is expected to grow up by 2.2% in 2012 and 1.2% in 2013.
2012 was a year of challenge for emerging economies. India had concerns of inflation, current account deficit, fiscal deficit and threat of sovereign downgrades this year and will remain in 2013. However it is expected inflation will ease and growth can revive. Indian economy will grow by 4.9% in 2012 and 6% in 2013. China’s GDP grew by 7.4% in third Quarter of 2012 which is the seventh straight quarterly decline. China Central Bank had brought easing measures to revive growth and the capital markets remained less attractive this year. China’s economy will likely expand 7.8% this year and 8.2% in 2013. Concerns of hard landing in China will remain in 2013 as well. Brazil’s growth will be only 1.5% in 2012 and 4% in 2013.A fragile global economy, plus severe infrastructure bottlenecks are the main obstacles ahead. Russia economy is expected to grow up by 3.7% in 2012 and 3.8% in 2013.
The IMF expects growth in the Middle East will be stronger this year at 5.3% as key oil producing countries boost production and Libya’s economy rebounds from conflict in 2011, but it brought down its 2013 forecast to 3.6%.The concerns on Egypt and Iran tensions continue to be a geopolitical threat for the region. Saudi economy real GDP growth is at 6% in 2012 and 4.2% in 2013. UAE economy real GDP growth is at 4% in 2012 and 3 % in 2013. Oman economy real GDP growth at 5% in 2012 and 4 % in 2013.Bahrain economy real GDP growth is at 2% in 2012 and 3% in 2013.Qatar economy is expected to grow up by 6% in 2012. In 2013, overall growth of Qatar is expected to moderate to 4.5%. The non-hydrocarbon sector is seen maintaining momentum through to 2013, but oil and gas growth will taper off. The current account surplus of Qatar will remain above 20% in 2013.
Oil prices have invariably remained at high levels in 2012 due to Iran tension and in medium term Brent can touch $125/ Barrel and WTI at $100/ Barrel. However with Libya and Iraq opening up oil supplies this could result in correction in oil prices by end of 2013.Gold and Silver prices recently continued to drop on concerns of US fiscal cliff however Gold can cross $ 2000/ Ounce and Silver $35/ Ounce in 2013 if fiscal cliff is resolved. Germany and Indian Capital markets were the leading performers in 2012. However Nifty, US Capital markets, France and UK also witnessed excellent rallies this year. The easing measures of various Central banks can bring rallies across different capital markets in 2013. However the challenges to such rallies include US fiscal cliff, Euro problems, Domestic economic growth and inflation issues. Fears of hard landing in China and a persistent high oil price can also prevent such rallies.