Economists expect U.S. GDP will grow a modest 2% in 2012, only slightly higher than the 1.7% rate expected for 2011, citing issues related to Europe, housing, jobs, and government spending cuts (“Risks Cloud Outlook for Economy in 2012,” by Conor Dougherty, Dec. 23, 2011, The Wall Street Journal).
The Journal’s survey of economists found that most respondents expect a mild Europe recession to hurt U.S. exports, persistent foreclosures to depress home values, job growth to be too weak, and government spending cuts – and related political wrangling – to further drag down growth.
“We know the global economy is going to slow,” Nariman Behravesh of IHS Global Insight told The Journal. “The question is by how much.”
Mohamed El-Erian of Pimco paints an even gloomier picture (“Pimco’s El-Erian Sees Risk Europe May Spark Lehman-Like Crisis,” by Rich Miller, Dec. 20, 2011, Bloomberg).
El-Erian, head of the world’s biggest bond fund, told Bloomberg the euro zone has a 1 in 3 chance of breaking apart and sparking a 2008-style financial meltdown. “It would be the equivalent of a sudden stop” in which financial markets seized up, El-Erian said, adding that the more likely scenario is that the euro currency union slims down.
El-Erian said he thinks nine of the current 17 countries would remain in the union – Austria, Belgium, Finland, France, Germany, Italy, Luxembourg, the Netherlands and Spain.
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