March 8, 2011

This is the time of year when economic forecasters first begin to think about the following year and the month when the monthly poll by The Economist introduces projections for the year after the current one.  Such early estimates contain very useful information.  Here are some of the revealed insights.

  • U.S. GDP is expected to expand about the same rate in 2012 (3.3%) as in 2011 (3.2%).  Since 1997-2000 when the United States expanded by more than 4.0% in four straight years, U.S. growth has exceeded 3.0% in as many as two consecutive calendar years just once, 2004-05.
  • An identical 2.0% rate of growth is projected for 2012 in Japan, Britain, Switzerland and Germany.
  • Euroland GDP growth is forecast at just 1.7% following 1.6% in 2011 because of policy-induced weakness in the peripheral members, which will expand by less in two years than the United States manages to do in just one year.
  • Some countries are projected to expand this year at almost the same pace as projected by forecasters a year ago.  This group includes the euro area, Switzerland, Japan, and France.  2011 growth forecasts in the cases of the United States and Germany have been revised upward by about 1.5 percentage points compared to estimates made a year ago.  Projected growth in Spain wasn’t strong to start — just 1.5% — but has been reduced over the past year to 0.6%.  Projected 2011 growth in Britain and Italy have likewise by cut.  The common thread is that fiscal austerity curbs economic growth, hopefully not so sharply as to be counterproductive in the pursuit of smaller relative budget deficits.
  • The United States and Euro area are each projected to experience 1.8% CPI inflation next year.  The ECB and Fed are clearly responding to this prospect in different manners.
  • Massive balance sheet adjustments are unlikely to accomplish a substantial reduction of current account imbalances.  The U.S. and British deficits are projected to equal 3.4% and 1.3% of GDP in 2012, while Germany, Switzerland, and Japan are projected to run surpluses equal to 4.7%, 10.7% and 3.3% of GDP.  The deficits of Spain and Italy, projected at 3.2% and 2.7% of GDP will help limit the euro area as a whole to a tiny deficit of about 0.1% of GDP.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



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