PARIS, Dec. 19 (UPI) -- The global economy faces a depressing prospect for the year ahead after a recent spate of gloomy results for countries and corporations and the failure of European leaders to convince the markets that the eurozone's debt crisis is close to being resolved.
Forecasts by the International Monetary Fund and leading banks have been revised downcast almost on a monthly basis. A year ago the IMF saw the global economy growing by 4 percent in 2012, cut to 2.7 percent in June and its latest assessment is much worse.
"The world economic outlook at the moment is not particularly rosy. It is quite gloomy," IMF head Christine Lagarde said at the U.S. State Department last week.
"There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis that we see not only unfolding but escalating."
Chilean economist Sebastian Edwards, a professor at the University of California-Los Angeles and former top official at the World Bank likens the global economy to a car running on a number of cylinders and currently they all seem to be misfiring.
The 27-nation European Union, the world's largest economic block, may already have slipped into a second recession, without ever recovering from the recession of 2009.
Only Germany and Sweden look like recording modest positive growth next year.
"At this point, a eurozone recession is certain," New York University Professor Nouriel Roubini, known as "Doctor Doom" for his correct prediction of the financial crash of 2008, commented last week.
"While its depth and length cannot be predicted, a continued credit crunch, sovereign-debt problems, lack of competitiveness and fiscal austerity imply a serious downturn."
Europe's strongest economies, including Germany and France, have been placed on notice that their triple-A credit ratings face a downgrade. On top of the sovereign debt crisis, countries across Europe are slashing plans for public spending which threatens to take $300 billion out of the European economy next year.
China, which contributed no less than 40 percent of global growth this year, is slowing fast as the property boom deflates and exports sales to troubled Europe collapse. Since Aug. 31, exports have shrunk so fast that container shipping rates from China to Europe have dropped 39 percent.
The Purchasing Managers Index, a closely watched leading indicator, has dropped to less than 50, which signals declining demand and output. Foreign direct investment into China dropped for the first time in 28 months and the Shanghai Composite Index of Chinese stocks has slumped to its lowest level in 33 months.
China's growth rate may have dropped to less than 7 percent in the last quarter of this year, analysts suggest, and India's latest gross domestic product growth figures dropped to 6.9 percent and its industrial production plunged 5.1 percent in October. . The Indian rupee fell to its lowest rate against the dollar.
Brazil's growth has shuddered to a halt. After recording 7 percent growth last year, after interest rate rises to curb inflation the economy fractionally declined in the third quarter of this year.
China, Brazil and India represent the three powerful cylinders of the emerging markets in the global economy, responsible for more than three-quarters of global growth last year. Their simultaneous slowdown bodes ill for 2012.
Japan, which had been expected to grow by more than 2 percent next year, faces strong headwinds from the record high value of the yen, which threatens exports, and the decline of its Chinese and European markets. The Bank of Japan is expected this week to cut its growth forecast for next year after a gloomy Tankan survey last week showed industrial output slowing ominously.
So with the European, Japanese, Chinese, Indian and Brazilian cylinders all misfiring, that leaves the strong U.S. cylinder to bear the burden of next year's global economy alone. But while unemployment rates, consumer spending and leading indicators all signal a modest recovery of 2 percent growth or more in the United States serious questions remain over the political will in Congress and White House to resolve the budget crisis.
Moreover, while corporate earnings in the United States have been strong over the past two years, leading companies including Best Buy, DuPont, Altera, Texas Instruments and Intel have all issued recent profit warnings. That could point to further job cuts while the strong dollar will curb exports and retail sales rose by a very disappointing 0.2 percent in November.
All in all, the outlook is for sluggish growth at best and possibly a mild downturn. But there are events, like a major European bank collapse or Italy being unable to finance its next debt demand, which could trigger something far worse.
There is one potential crisis that the markets half-expect and one they haven't yet seen. The one they think likely is a downgrade for France's credit rating, which would mean that the bailout fund for the euro would be less than expected, since it depends on the triple-A rating of the European countries that back the fund. That would be a real problem.
The crisis the markets haven't yet seen is the prospect of a banking disaster in Spain, where home prices fell for the fourth year in a row as unemployment jumped to 23 percent. They fell 7.4 percent in the third quarter from the same period last year, the National Statistics Institute in Madrid stated. Repossessed houses in Spain are worth 43 percent less on average than the valuations assigned on the mortgages for the properties, Fitch Ratings says. The banks face punitive write-offs.
Despite everything, there is hope. Tiny Iceland, one of the worst-hit victims on the crash of 2008, is expected to grow 2.6 percent next year. And the boom in shale oil and natural gas should help the U.S. economy to cut its trade deficit and to do better than expected, so a happy new year to all our readers.