London, Asharq Al-Awsat- There is so much happening in the world now that to predicting what will take place in 2012 is impossible. So with that qualification I will set out some thoughts anyway.
2012 will be pivotal for business. The decisions and actions of governments in 2012 – good or bad – may define the next decade.
Two events in particular will slow the recovery in the early part of 2012: elections and the eurozone crisis. A third may have an even greater long-term effect: new constitutions in the Middle East.
There will be many elections in 2012 including presidential elections in France, USA, Russia and Egypt and parliamentary election in dozens of countries. Uncertainty surrounds elections bringing policy to a stands still. This will delay important actions in the first half of 2012.
The world’s recovery from recession is slowing, according to The Economist’s measure of global GDP, based on 52 countries. The last 12 months have seen the developing world expand at about 7%. Developed countries, meanwhile, have been weighed down by the euro crisis. Niger and Iraq are predicted to be the fastest growers of 2012, with GDP increases of 15% and 11% respectively. At the other end of the spectrum, debt-laden Greece and Zimbabwe will both shrink by around 0-3%.
It should be remembered, however, that around two-thirds of the global production of goods still comes from developed economies.
In the eurozone uncertainty will put off any upturn in growth until late in 2012.
In the Financial Times this week Mario Draghi, in his first interview as president of ECB, said that any struggling eurozone countries that quit the currency bloc would face even greater economic pain. Countries that left and devalued their currency would suffer high inflation and fail to escape from structural reforms that would still have to be implemented.
The ECB is taking unprecedented measures to shore-up eurozone banks, including its first ever offer of unlimited three-year loans this week.
Private sector buyers of sovereign debt – banks, insurance companies and pension funds – generally make asset allocation decisions on a quarterly or yearly basis. Unless a clear and convincing plan can be set out by the end of January eurozone sovereigns will find it harder to finance the €637 billion (euros) of debt falls due in 2012. Nearly 40% falls in the first four months of the year. Italy has to refinance around €150 billion (euros) of debt between February and April next year, and Germany and France also have substantial refinancing schedules in Q1 of 2012.
The region’s politicians have to take the lead in rebuilding investor confidence in eurozone public finances – by ensuring fiscal discipline and making fully operational Europe’s rescue fund, the European Financial Stability Facility. I predict that at the last moment they will.
I also predict that Greece may leave the eurozone in 2012, but it will be the only country to leave.
Looking at the UK the outlook is reasonable with Britain retaining its AAA rating and sovereign borrowing rates extremely low. Despite predictions of slow growth, there is no need for doom and gloom. The UK economy has the potential to recover and thrive. Britain’s economic prospects will improve, but not overnight. A strong recovery relies on creating the right conditions for growth. Companies need the best possible environment to generate wealth and create jobs. British government policy is directed towards that.
In the Middle East it is the titanic transformations in 2011 that make 2012 a decisive time. The Arab world must work out how to operate in the best interests of its citizens. I predict more evolution and less revolution in 2012.
2012 will be a year when the Arab world will have to work together as never before. Decisions in the first half of 2012 must focus on bringing opposing factions together; on adopting strategies sensitively, maturely and bringing self-interest to an end. This will not be easy.
As power transfers from established ruling elites their relationships and the interests of previously repressed groups may be crucial when developing new constitutions. If done well it will embrace diversity and multiplicity among the groups and lead to inclusion and protection. There are two approaches – realist and the idealist. The realist approach understands constitutions as reflections of the balance of power at the time of writing and thus does not consider them to have any particular role as agents of change. By contrast, the idealist approach sees the role of a constitution as breaking with the old regime and to establish a new political order.
Understanding this ambiguity between realist and idealist approaches becomes especially relevant when the constitution-making processes involve a country in transition. It is necessary to get this right.
The Middle East will be sheltered from some problems in the developed world as tight supply promises to keep oil prices relatively resilient in 2012, even if world GDP actually contracts.
I predict that despite all the uncertainly oil prices are not going to relive 2008, when prices went quickly from nearly $175 a barrel in July 2008 to under $50 by the winter of 2009.
The supply side of the oil market is weaker today than it was in 2008, according to Barclays Capital in London. Even as demand has moderated, supply (total OPEC and non-OPEC) has fallen faster, resulting in substantial inventory draw downs through the year. According to the latest International Energy Agency data, OECD inventories were around 25 mb below their five-year averages, placing those countries in a tighter position than they were in 2008, when countries had abundant oil based on the perceived notion that their economies were going to keep on booming.
So falling global demand is unlikely to create large spare capacity in 2012. This will provide many Middle East countries with the resources to develop infrastructure.
The next prediction for 2012 is that the IMF is going to become bigger and stronger because it will take on some responsibilities of technocrats who can’t rebalance economies without political support. Europe and emerging markets will channel their resources through the IMF.
And finally. There will be increasing opportunities in Africa. The Chinese will come to be viewed with mixed feelings—especially in smaller countries where China’s weight is felt all the more. This will result from poor business practices imported alongside goods and services. Chinese construction work can be slapdash and buildings erected by Chinese firms have on occasion fallen apart. A hospital in Luanda, the capital of Angola, was opened with great fanfare but cracks appeared in the walls within a few months and it soon closed. The Chinese-built road from Lusaka, Zambia’s capital, to Chirundu, 130km to the south-east, was quickly swept away by rains.
The only way out of the debt crisis is through growth. 2012 will offer more opportunities for a better business climate than 2011, as nations develop strategies to promote growth.
I wish you all a very happy New Year and a safe and successful 2012.
John Davie is a visiting professor at London Metropolitan Business School and chairman of Altra Capital