Global, US Growth Rates Should Be Below Par In 2012

Next year will be one of challenges for the global economy, say analysts at RBC Capital Markets. The euro-zone debt crisis and possible Middle East tensions are risks for outlook.

Developed economies will turn in subpar growth next year, according to the RBC global forecast, as presented in a conference call Monday.

The euro zone will experience no growth next year, as the uncertainty from the debt crisis has a negative impact on credit. The RBC analysts say the European Central Bank is ready to step in, with further action expected on Wednesday. Even so, the euro zone will be technically in recession.

The U.S. economy is forecast to grow just 1.7%. Tom Porcelli, the chief U.S. economist, expects two key pillars of 2011 growth, exports and capital spending, will decelerate next year.

Elsa Lignos, G10 currency strategist, forecasts the euro will weaken against the U.S. dollar throughout 2012, but euro bears looking for a collapse may be disappointed.

As a whole, the emerging-market economies are expected to grow about 5.5% in 2012, according to the RBC forecast.

The emerging markets will feel continued pain from the euro-zone debt crisis. In particular, European banks hold about $2.6 trillion in emerging-market assets and the banks may look to sell those securities in order to raise needed capital next year. That means emerging markets will face difficulties finding new financing, a drag on growth.

In discussing 2012, the RBC forecast notes that one underappreciated risk is increased Middle East tensions. Iran could become more involved in Middle East affairs, adding volatility to an already stressed region. Oil prices could increase because of supply concerns, rather than from higher demand.

If so, Lignos says that could benefit the Canadian and Australian dollars.

-By Kathleen Madigan, Dow Jones Newswires; 212-416-2466;

kathleen.madigan@dowjones.com

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