It’s good to be Canadian. While the U.S. housing market crumbled – to a certain degree bringing the global economy along with it, after some slight hiccups, the real estate markets in most Canadian cities have continued a slow and even climb.
And where European governments have been tottering on the verge of bankruptcy, threatening the very existence of the Euro, the loonie is more-or-less on par with the once-mighty (and still default global currency), the U.S. dollar.
But only a fool would think that the Canadian economy is not heavily influenced by events in the U.S. and Europe. Here, we review what various economic soothsayers from around the world predict 2012 will have in store for the global economy.
The Outlook for the US
It’s not just a cliché to say that Americans love to shop. Consumer spending accounts for some 70 percent of economic activity in the country that receives three-quarters of all Canadian exports. So when shoppers stay home from the malls, there’s a trickle-down effect that has negative impacts across the board, and the border.
One forecaster, Macroeconomic Advisers, predicts very modest growth of just 2 percent for the first half of 2012. Mirroring that figure, Morgan Stanley and Goldman Sacks both predict U.S. GDP will average about 2 percent in 2012.
On the housing front, prices continue to drop in many regions – in some parts of Detroit you can actually buy a house for less than $1,000. And by one estimate, one in five homeowners is “underwater,” meaning the amount they owe on their mortgage is higher than what the place is currently worth.
That said, there are some promising signs of a potential recovery. The national unemployment rate was 8.2 percent in November 2011, down from 9.3 percent the previous year. That same month, new construction starts in the U.S. jumped 9.3 percent. The 685,000 homes (and condo units) that ground was broken on that month is the highest level in nearly two years.
Also in November, existing-home sales totaled 4.42 million, a 12.2 percent increase over November 2010. Helping home sales is the fact that it seems unlikely that the U.S. Reserve will raise interest rates until sometime in 2013. Adding some clarity to the situation, starting January 25, 2012, the Fed will regularly post its long-term forecast for interest rates.
The Outlook for Europe
The outlook is worse in Europe. Scotiabank predicts zero growth in GDP for Europe as a whole (with modest gains for the UK, German, and France negated by negative GDP figures in countries like Spain and Italy). The fact that there are more than 16-million unemployed people in the European Union countries certainly won’t help.
Spain enters the year on the verge of an official recession – defined as two successive quarterly contractions – and the country suffers from astonishing levels of unemployment: 22.9 percent overall, and nearly 50 percent amongst young people.
Things aren’t much better in the U.K. (Canada’s second-largest trading partner). The Bank of England predicts a mere 1 percent growth in GDP, hampered by an 8.3 percent unemployment rate – equating to 2.62 million people out of work – the highest level since 1996. And, as if it weren’t hard enough to buy a house when you’re unemployed, the British Chambers of Commerce predicts that interest rates will start to rise in August.
Even economic powerhouse Germany, with its low unemployment rate of only 5.5 percent, is predicted to have less than 1 percent growth.
Until the hard-hit economies of Spain and Portugal are stabilized, it looks like Europe as a whole will remain in flux.
The Big Unknowns
Economic stability relies in large part on social stability. It’s not a far stretch to call 2011 The Year of the Protest. In fact, Time magazine named “The Protestor” as its annual Person of the Year. From the Arab Spring, which brought down numerous dictatorial regimes across the region, to the Occupy Wall Street movement, which spawned offspring Occupy sit-ins in cities large and small across the Western world, there was an unprecedented show of dissent with the status quo.
Add in the uncertainly over how Iraq will fare after the U.S.-pull out, a relatively unknown leader taking power in nuclear-armed North Korea, the ongoing threat from global terrorism, and countless other variables that could cause wild economic swings, the short-term economic future doesn’t look too bright.
Then again, if you believe what Hollywood and the new age shamans tell us, it’s all a moot point: the Mayan long-count calendar ends on December 21, 2012, so we’re all going to die anyway…