Business Outlooks Forecasts Predictions for 2012: Global, U.S., China, Japan, Germany, India…; Rethink, Reflect, Recharge–Hazards Caution…

“Never predict anything, especially the future” ~ “Fasten your seatbelts, it’s going to be a bumpy year!”

Business Outlooks Forecasts Predictions for 2012: It’s often difficult to see clearly through tough times, but a new year encourages reflection and rethinking. Some of the most experienced and innovative minds probe deep into the key business and economic issues and provide their insight for 2012.

The Wall Street Journal on December 23, 2011 headlined; ‘Risks Cloud Outlook for Economy in 2012’, saying: “The economy is poised for another year of muddling through. Most private economists forecast a modest 2% growth rate for the U.S… A pace subdued by housing woes, a lackluster job market, and cuts by government.  They also warn of potential spillover from weakness abroad, including a mild recession apparently under way in Europe”.  

The consensus view of concerns and uncertainties highlighted, in the article, included: global weakness, threatening U.S. exports; weak housing demand with foreclosures affecting prices; protracted unemployment and weak job creation; and government belt-tightening.  However, “when all the experts and forecasts agree – something else is going to happen,” says Bob Farrell.

In other words, when mainstream consensus forecasts one way, expect another. On December 28, 2011, ‘Financial Times’ contributor Mark Mallock-Brown headlined:The downward slide continues…” saying: “Next year (2012) is not going to be better….Whatever temporary economic fixes are applied to the euro-zone, U.S. deficits and unemployment, the overheated Chinese real estate market, petering Indian reforms or stalling Brazilian growth,” expect more slide.  There are clouds on the horizon that are likely to slow U.S. economic growth to 2% for the year as a whole”, says Jerry Jasinowski.

The biggest problem facing the global economy will be a major credit crunch and recession in Europe. This is all part of a global slowdown in growth; as India, Brazil, South Korea, and even China are seeing growth slow from the 2011 pace. India has been particularly hard hit by inflation, tightening credit and an emerging currency crisis. China’s growth has slowed enough to cause Beijing to lower its reserve ratio to ease monetary policy…

In the article “Global Economic Outlook 2012” by ‘The Conference Board’ writes:  Until at least the middle of the next decade, global growth is likely to slow to approximately 3% per year on average–a rate somewhat below the average of the last two decades. A recovery in the advanced economies will be more than offset by a gradual slowdown in the emerging economies as they mature, with the net result that global growth will slow.

But the biggest risk ahead for the global economy is not this slower overall growth in output but a slowdown in average output per capita, which will determine how fast living standards can be supported and raised. Main results:

  • Global growth is projected to grow at 3.2% in 2012.
  • Advanced economy growth is expected to slow down from an already meager 1.6% in 2011 to 1.3% in 2012.
  • In 2012 emerging economies will slow in growth by 1.3 percentage points on average, going from 6.4% growth in 2011 to 5.1% in 2012.
  • The greatest challenge for the global economy in this slow growth environment is to raise productivity without losing job opportunities for the millions who are looking for reasonably paid jobs to support their living standards.

In the article Warren Buffet and 69% of CEOs Cautiously Optimistic for 2012” by ‘ChiefExecutive.net’ writes:  Warren Buffet’s actions in 2011 positioned Berkshire Hathaway to benefit from improved overall business conditions in 2012. In the first quarter of 2011, Buffett told shareholders that he was ready to put his firm’s more than $40 billion in cash to work. Our elephant gun has been reloaded, and my trigger finger is itchy,” said Buffet back in February 2011.

Though 2011 was a tumultuous year for business, Buffett signaled that conditions were ripe for acquisitions, positioning his firm to profit from macro improvements in the coming year. And acquire he did; Buffett spent more in Q3 than any other quarter in 15 years. Nine billion in cash went to acquiring chemical giant Lubrizol, and then Buffett took an $11 billion stake in IBM. He also gave a struggling Bank of America $5 billion in cash. Buffett’s willingness to drop so much cash indicates that he anticipates an upswing in the economy and business conditions in 2012 and beyond.

Buffett’s confidence seems a bit higher than ‘Chief Executive‘s’ readership, who were optimistic, but still cautious heading into 2012. Though the ‘CEO Confidence Index’ (gauge of CEOs’ perceptions on overall business conditions) did take a hit during the middle of the year; the fall 2011 brought a renewed optimism to the table.

The Index levels are still moderate, and a bit tempered, but preliminary results for the ‘January 2012 CEO Confidence Index’ indicate that expectations for business conditions is continuing to rise. In 2012, just fewer than 69% of CEOs expect to see increased revenues, and 42% expect that they will increase capital expenditures. CEOs are investing in their businesses and are making acquisitions...

In the article “Can We Trust the Moderate Growth Forecasts?” by James Picerno writes: Another day, another economic forecast. The 35 economists polled for the latest ‘Livingston Survey’ via the ‘Philadelphia Fed Project’ looking ahead to 2012 “see the growth rate of economic output slowing to 2.1% (annual rate) in the first half of 2012, and they predict that it will then increase to 2.5% (annual rate) in the second half of the year.” The economists also expect “a slow recovery in the labor market, with the unemployment rate at 8.9% in June 2012.”

Those unemployment predictions are up slightly relative to the June 2011 forecast. Forecasts are made to be broken, of course. Reality is never quite what it seems until it arrives. What events might conspire to knock moderate expectations off the pedestal? One risk that’s surely on the short list for monitoring is the potential blowback for emerging markets from the various ills infecting the developed world.

‘International Monetary Fund’ deputy managing director Min Zhu, in a speech, explains: Major ‘advanced economies’ seem to have entered a vicious cycle of weak economic activity, financial distress, and high public debt and deficits. Emerging economies, by contrast, show stronger fundamentals that have underpinned global economic growth so far. But these economies are not immune. In fact, vulnerabilities are increasing, and potential spillover from advanced economies are weakening their economic outlook…

In the article “Economic Turbulence Forecast for 2012” by Mil Arcega writes:   There are serious challenges for policy makers in 2012, including; the slowdown in China, Europe’s debt crisis… Reflecting on the global uncertainty, World Bank President Robert Zoellick urged Europe and its biggest trading partners to act responsibly. “Europe has to rescue Europe, and it’s very important. If there’s any message when I’m asked; ‘Well, what can the U.S. do and what can China do?’ The best thing they can do is clean up their own act at home, be a source of growth at home, and, secondly, be a source of confidence to the market.” 

Zoellick is encouraged by ongoing reforms in China aimed at reducing the country’s reliance on exports, but he warned U.S. lawmakers against further delays in dealing with the nation’s rising debt, now close to $15 trillion. Unless leaders are willing to make the tough decisions needed to stabilize the global economy, Zoellick and many leading economists say problems in Europe, U.S., and China could coalesce into a ‘perfect storm’ in 2012 that could rival the financial crisis of 2008.

Japan’s Economic Forecast, 2012-2013: Japan has had some difficult times, but its economy is still vitally important to many U.S. businesses. Japan’s economic growth took a dive because of the natural disasters, but 2012 will clearly be a bounce-back year, fueled by rebuilding as well as the general economic strength of the areas not directly affected by the earthquake and tsunami.

In subsequent years, growth is likely to taper down to Japan’s sustainable long-term growth rate of just over 1%.  Rolling all the issues together, U.S. companies selling into Japan should plan on better sales in 2012 and 2013 than they had in 2011, with especially strong sales for products used in rebuilding…

South Korea Economic Forecast, 2012-2013: The outlook for South Korea’s economy is positive, if the two greatest risks are avoided: European collapse and conflict with North Korea. U.S. companies doing business in South Korea should establish plans for moderate growth, with contingencies for the downside possibilities.

In this country, however, contingency planning for a recession is probably different from contingency planning for armed conflict. The former is absolutely vital for companies selling to South Korea, and the latter is important to companies with physical facilities in the country…

German 2012 Economy Forecast: A leading German economic think tank says it is lowering its 2012 growth estimate for Europe’s largest economy to 0.6%. The DIW think tank said that the German economy would likely slide briefly into recession before recovering by mid-year. DIW previously had forecast 1% growth for Germany in 2012 but says; “ongoing problems in other European Union countries will likely hurt German exports”.

It says it expects the economy to recover with 2.2% growth in 2013, but only if the euro-zone debt crisis stabilizes. Other German economic think tanks are forecasting 2012 growth between 0.4% and 0.8%. The government’s independent economic advisers are predicting 0.9% growth…

India Business Forecast Report Q1 2012:  India’s cyclical growth slowdown is likely to be deeper and more protracted than previously expected given the higher cost of capital and deterioration in global external conditions. The RBI’s ‘Survey of Professional Forecasters on Macroeconomic Indicators’ in August 2011 put median expectations at 7.9% and 8.3% for FY 2011/12 and FY 2012/13, respectively.

Faced with a slowing economy, and in the absence of major one-off windfalls, the government’s nominal fiscal balance in FY 2011/12 will come in wide of the mark, with FY 2012/13 unlikely to prove much better. They are penciling in central government deficits worth 5.8% and 5.5% of GDP in FY 2011/12 and FY 2012/13; accordingly, they believe it to be only a matter of time before the authorities admit defeat and down-grade their current targets of 4.6% and 4.1%…

China’s Economic Forecast, 2012-2013: The IMF’s forecast for China is reasonable at 9% inflation-adjusted growth. That forecast, however, assumes no collapse in Europe, which is a pretty big assumption. The consensus forecast now is that 2012 growth will be right in line with the country’s long-term growth potential of about 9% per year. However, there issues to consider: Housing prices are thought by some to be bubblicious.

Export market weakness is the greatest risk to China right now. The European Union accounts for about 20% of China’s total exports. Finally, the value of the yuan continues to trend upward, which will limit export growth. U.S. companies selling to China should be prepared both for continued growth and for a markedly slower pace.

According to a survey released in December 2011 by Bank of America/Merrill Lynch; CFOs give the U.S. economy an average score of 44 on a scale of 0-to-100, down from 47 at the beginning of 2011. The “2012 CFO Outlook” survey indicates that this score is equal to the 2010 score, which was the lowest in the survey’s 14-year history. The global picture looks just as bleak: the global economy now rates lower than the U.S. at 43, down from 51 at the beginning of 2011.

Meanwhile, only 38% of CFOs expect the U.S. economy to expand in the coming year, down from 56% in the 2011 survey. Although CFOs hold a fairly pessimistic view of the economy, 56% expect their corporate revenues to grow in 2012, although that proportion is down from 64% a year ago. Similarly, while 41% are forecasting profit growth, that proportion is also down from 55% one year ago, and a significant 15% of respondents predict declines in the year ahead. Half of the CFOs surveyed intend to increase the prices of their products in 2012, while 44% will keep them steady and only 4% will lower them.

On a brighter note: 46% expect their companies to hire employees, unchanged from last year, while only 7% anticipate work-force reductions. The leading economic concerns among CFOs are the effectiveness of U.S. government leaders (70%), the U.S. budget deficit (63%), and healthcare costs (60%). In addition, 58% list unemployment levels and 55% see consumer confidence as concerns…

The world won’t end in 2012, but at times it will feel as if it is about to. That is, the western economies will flirt with disaster, thanks to the indecisiveness of politicians on both sides of the Atlantic. The euro-zone could head back into recession because it dithered too long over the debt crisis in the single currency’s periphery. The high-flying emerging market countries — the BRICs: Brazil, Russia, India and China — are collectively down more than 20%.

India being the worst with its stocks losing 25% of their value. These major emerging markets are likely to all continue slowing in 2012. In 2010, China’s economy grew at 10.3%, it slowed this year 2011 to 9%, and next year 2012 it will be lucky to get 8%. China will get closer to overtaking U.S. as the world’s biggest economy (pencil in 2016 as the likely year); the ‘redback’ (yuan) will make faster-than-expected strides towards joining the ‘greenback’ (dollar) as a global currency.

Economic and market forecasts presented herein reflect the judgment of experts and the forecasts are subject to high levels of uncertainty that may affect actual performance. Accordingly, these forecasts should be viewed as merely representative of a broad range of possible outcomes.”