Global Economic Outlook 2nd Quarter 2012

In recent months, four major decisions in Europe have improved the outlook, reduced the risk of catastrophe, and likely moderated the severity of the recession. After restructuring Greece’s sovereign debt, Europe will need to pursue structural reforms to stimulate growth.

Recent data that appears to herald economic improvement is anything but the stuff of sustainable recoveries. While modest growth may continue for some time, myriad geopolitical risks threaten to pull the United States into another downturn.

Recent policy decisions have been effective in partially offsetting negative external headwinds faced by China’s export sector. The result is likely to be a soft landing this year. However, China continues to face longer-term challenges.

Problems pertaining to trade balance, fiscal policy, and currency would suggest economic weakness in Japan, but the country’s economic performance is likely to improve in 2012 because of a more aggressive monetary policy, a weaker yen, higher inflation, and more government spending on reconstruction.

The UK economy is exceeding previous expectations, but its performance in 2012 is likely to be relatively poor. A combination of easier monetary policy and the lessening of crisis in Europe will likely help the UK to avoid recession in 2012.

India’s central bank continues its efforts to strike a balance between growth and inflation. Its large fiscal deficit means that the government has fewer policy options to deal with a deteriorating economic situation.

Several conflicting factors in Russia may result in slower growth in 2012. The country’s growth prospects will hinge on choices made by Russian policymakers.

Brazil experienced a deceleration, but growth is expected to rebound later this year. A loosening of monetary policy and a boost to investment in infrastructure and energy should help to offset the negative external headwinds.

Indonesia’s performance has been nothing short of stellar, and despite a variety of obstacles, there are plenty of reasons to be excited about Indonesia’s prospects in the coming year.