Momentum to drain from world economy in 2012

The world economy will lose momentum in 2012 but it will keep moving in the right direction, according to Reuters polls of around 600 economists who said crisis-hit Europe would drag on global growth. Asian economies will again power the expansion of the world economy this year, but with relatively subdued performances.
---- Asian economies to lead the way, but in subdued form
---- US should see modest growth, Europe to lag
---- Eurozone debt crisis biggest risk to world economy
The United States, meanwhile, should see modest growth that will easily outpace its recession-hit European peers. A Reuters poll that covers all of the top 20 developed and emerging economies, as well as some others in Asia, suggests global economic growth will slow to around 3.3 percent this year from an estimated 3.7 percent in 2011.
That is more optimistic than the latest forecast from the World Bank, which predicted world GDP would rise only 2.5 percent this year. By far the biggest risk to the world economy right now is the euro zone's sovereign debt crisis, which has already dented export growth as far afield as China, offsetting the upbeat news from the United States recently.
"An unexpected revival in US macro data has taken financial markets by surprise. This relatively upbeat tone contrasts starkly with growing evidence of a euro zone recession," said Jan Lambregts, global head of financial markets research at Rabobank. "Asia meanwhile appears to plod along, leaning a bit more to the weakness of Europe than to the signs of strength in the United States." The poll's forecasts assumed the debt crisis would smoulder on, rather than flare up into a major global emergency as in 2008 following the collapse of Lehman Brothers.
China will again top the economic growth charts this year with growth of 8.4 percent, although that is only a little over the 8 percent mark economists deem necessary to create enough jobs to satisfy the country's fast-growing population. India's economy will not be far behind, expanding 7.0 percent in the 2012 fiscal year, although that would still be its worst showing in two years thanks to tight monetary policy and political deadlock.
This year looks certain to be difficult for the rich developed economies. The world's largest, the United States, should grow around 2.2 percent in 2012. While fairly modest by historical standards and compared to its emerging peers, that would be vastly better than the 0.3 percent contraction expected for the euro zone economy.
The immediate risk to Europe's economy would be a disorderly sovereign debt default from Greece that would hammer the European financial system. Athens is bargaining with its private creditors on a bond swap deal needed before it can repay 14.5 billion euros ($18.5 billion) of bonds falling due in March.
"The seeming inability of euro zone policymakers to get on top of the region's sovereign debt crisis is threatening to exact a toll on economic growth well beyond its peripheral economies," said Mark Cliffe, chief economist of ING Group. Germany will probably be the only major economy in Europe to rise above stagnation this year, although not by much - economists expect its economy to expand by 0.5 percent in 2012. Even Japan, mired in deflation and struggling to overcome the economic shock of the earthquake and tsunami last March, will easily outstrip European economies with growth of around 1.8 percent in its fiscal year 2012-13.
That is the lowest forecast since the aftermath of last year's natural disasters, however, underscoring how over-optimistic some commentators were in expecting reconstruction to fuel a rapid expansion. Backed by a mining boom, Australia's resource rich economy should lead the developed world in terms of growth, with a hearty 3.4 percent expansion this year. "The mining investment boom is largely 'baked in' and is expected to contribute two-thirds of GDP growth in 2012," said Paul Bloxham, chief economist at HSBC Bank Australia.