- Never write off the US economy (and as I keep telling friends and foes…never write of the Manchester United…despite tonight's 3-0 thumping at Newcastle). I expect growth to pick-up, the genie of the fiscal imbalances resolved through a mix of higher taxes and lower expenditures….although not until after the presidential election in November – ie not before 2013.
- And the US$ to continue strengthening….particularly against the € (and which in turn should help the Euro economy to export its way to growth)
- The polarisation of US politics to right and left and away from the consensual politics since the New Deal to continue although I expect a presidential race-off between a moderate Romney v the incumbent Democratic president – and I expect Mr Obama to be re-elected.
- Continuing political risk...with Syria continuing to internally combust (a real pity, a lovely place and people), Egyptian polity unresolved as the economically powerful military resists losing its role and privileges, Yemen and possible further spillover into the rest of the Arab-speaking Gulf, Maghreb (next parliamentary elections in May 2012) and sub-Sahara.
- The buyout of possible social discontent …”social contract” of a sort…will continue to limit the spread of the Arab Spring into Saudi Arabia as it and others in the GCC hand out oil-fuelled freebies to electorates fussy about political rights and accountability.
- Unknown unknown in Iran as internal squabbles there play out...even possible (hot air) threats of oil disruptions in the Strait of Hormuz will lead to nervousness and gyrate oil prices….as will the possibility of an Israeli strike in Iran (which is unlikely until the situtaionSyria is resolved).
- Turkey: muscular foreign policy in recent years has been - a bit like Russia – propelled by a booming economy. A rapid slow-down and reversal on the Turkish Lira will, in turn dampen - at least for a bit - a return to quasi-Ottoman role in the Levant.
- Iraq…sadly the internecine domestic violence no longer shocks and the departure of US troops will not materially change risks to oil outflows…but if the situation in Iran spins into a high-risk tail event, then …
- Economically the risks for 2012 must be on the downside. Tourism receipts will continue to be hit – important from Jordan, Egypt to the GCC (eager to be global hubs between Europe and emerging Asia) but also in the Maghreb. The political risk coupled with a global slowdown will be a credit negative for inflows of foreign non-debt monies. This will not matter for the uber-rich oil-rich economies but will hit the rest – and in turn further raise potential political unrest if it leads to higher (and in particular youth) unemployment.
South East Asia
- I had the pleasure of reviewing many of the sovereigns this year…and the economic challenges there were of how to slow down over-heating economies. The global slowdown and repatriation of bank capital from EU banks in 2011 has already had the de-celerator effect…
- With growing middle classes and high savings rates, a glide path to a steady Goldylocks economic growth rates will ensue despite the effects of natural disasters in Japan and the floods in Thailand.
- China: a lot of quasi-fiscal debt floating about, a lot of NPLs, but at the end of the day its all sovereign and can therefore be absorbed (ok it won't solve the flow problem of it re-emerging without some serious structural reform)….with a change-over in leadership in 2012-13, a mix of fiscal and monetary loosening, and some dodgy numbers, will mean no hard landing….just a easing down of growth
- …helping the region to chug along nicely..
- Japan: lest we forget this remains, despite a moribund decade, the world’s largest creditor and the world’s third largest economy. Following an awful 2011 with the devastating effects of the Earthquake in March and the nuclear accident, the rebound in reconstruction-fuelled growth will continue to drive domestic demand into 2012. I expect intra-Asian supply chains to steadily rise with a rise in recent years’ trend of off-shoring production of lower-value into emerging Asia.
- Delicious timing of the Dec 25th announcement of the China-Japan Currency Pact…most of us were busy tucking into Christmas pudd at the time. This will help yuan-yen trade without having to go via dollars but the bigger story is the continuing – and healthy – internationalisation of the yuaan with a transition through trade financing, international investment and ultimately reserve holding…
- India: the region’s 3rd largest economy will continue to motor along at almost the same growth rate as last year although the tightening monetary policy will have a lagged effect into 2012. Currency weakening will push up import costs but any balance of payment problems will be avoided. Despite the volte-face on opening the retail sector to the likes of Walmart, the Jan 1st announcement of allowing foreign nationals to invest directly in listed companies marks a general strategy of financial liberalisation Indian style – and a means to increase capital inflows that in turn should help to cover the financing for any current account wobblies. Is this a reaction to the currency outflow and weakening rupee? Sure, but these are important steps in broader financial and capital account liberalisation.