Resource Search

Although a multitude of risks remain, including the unresolved situation in Europe, geopolitical risks from Iran, and fiscal austerity in developed nations around the globe, markets are enjoying the moment, allowing risk assets to flourish and volatility, at least as measured by the VIX index, to retrench to a seven-month low.

The world continues to ride the same train of global imbalances. While short-term solutions have allowed us to arrive at the next station, few are attempting to address the long-term issues. We believe that capital markets will continue to assail the weakest links in the financial system, which, hopefully, instills the required discipline for policymakers to make needed, but difficult, decisions. Unfortunately for long-term investors, this suggests that we will continue to encounter a series of market crises, leading to continued market volatility that can test investor resolve.

As we briefly review 2011, one thing is apparent: corporations generally had a better year than politicians, job seekers or investors. Despite 2011’s economic volatility, companies delivered better earnings than the consensus had forecast last January. Yet despite solid corporate profitability, macro uncertainties kept stocks under pressure for most of the year and ignited a simultaneous flight to the safety of U.S. Treasuries. With 2012 being an election year, we can expect to see even more sparring in Washington, D.C.

This latest quarterly issue of “ViewPoint” features an interview in which the bank’s chief investment officer discusses his outlook for the global economy and capital markets for 2012. He notes that the U.S. should exhibit positive growth, boosted by capital spending, and that a growing U.S. economy should keep the global economy in positive territory despite the situation in Europe.

The financial crisis that began almost five years ago is still with us, and we are still dominated by the events unfolding in Europe. What are some of the root causes of the crisis, and what is the future likely to hold? This white paper examines the evolution of the financial crisis and offers advice on how investors might best navigate the complex future we face.

Against the backdrop of a double decoupling in growth and inflation between economies in the developed and emerging worlds, investment experts gathered to reappraise and analyze the global economic and financial situation and outlook. The key points and conclusions from their discussions are presented in this new, annual publication.

The U.S. will continue its expansion in 2012, but solid global growth depends on Europe experiencing only a moderate recession and the emerging market economies gaining momentum as the year progresses. Less inflationary pressure should help growth, but intermittent financial market pressures from the European debt crisis likely will cap investor risk appetite.

The most likely outlook for the world economy in 2012 is a global growth recession with global real GDP growth in 2012 of about 3%. The overall economic outlook reflects a full-scale recession in Europe, stagnation or moderate recession in the U.K., near-trend growth in the U.S., continued expansion in Japan, and moderate slowdowns in China and most other emerging markets.

The key theme in the second half of 2011 was one of moderate, sub-par economic growth accompanied by modest inflation pressures and no change in the federal funds target rate. Expect more of the same in 2012, with the economy expanding 2.0% for the year and small gains coming from many sectors of the economy.

Investment strategies based purely on expertise in a particular industry or asset class will be insufficient in 2012; developing a broader view is essential to navigate the increasingly correlated environment. This comprehensive overview is intended to help investors refine their perspective across a host of markets, economies, and industries.