2012: A look through the crystal ball

Joanna Faith asks industry experts what they think the next 12 months has in store for the global macro picture.

When fund managers gave us their predictions this time last year as to how 2011 would pan out for global markets, no one could have predicted the wave of events that materialised.

The Arab Spring; record high oil prices; the deteriorating situation in the eurozone; talk of single currency collapse; a dramatic summer sell-off; spiralling inflation; the fall of the Greek and Italian governments and worrying GDP figures were all headwinds investors had to contend with.

As we look towards the next 12 months, another set of unforeseen events will more than likely stump investors. But, in general, are pundits expecting a more positive year?

Eurozone and UK

The general consensus for the western world is gloomy. Cazenove multi- manager Robin McDonald believes growth will remain fragile and weaker than markets expect and is preparing for a “tricky” 2012. “The market view seems to be US growth will continue to muddle through while there will be pockets of recession in Southern Europe. Our view is the odds of a more broad based recession are higher,” he says.

Azad Zangana, economist at Schroders, is even more pessimistic. He has slashed his forecasts for global growth in 2012 from 3.4% to 1.8% largely as a result of the deterioration in the eurozone where he now expects an outright recession.
Once the credit crunch starts to bite, he predicts a serious recession in the monetary union, which in- turn will cause a feedback loop in the banking system. “Although we are not forecasting a recession that is as deep as that of 2008/09, the UK is likely to follow the eurozone into recession, which is likely to prompt at least one more round of quantitative easing in 2012,” Zangana says.

Meanwhile, Andreas Utermann, global chief investment officer at Allianz Global Investors/RCM, is predicting a significant slowdown in economic activity in 2012.
The rise in the oil price in the first of half of 2011, tighter monetary policy in emerging markets, and fiscal tightening in the US and in Europe, is all taking its toll on growth, he says. “Since the summer, tensions in the financial markets have added further pressure: with financing conditions for banks becoming more difficult, we expect this to have a negative impact on credit growth going forward.