Tags: US | Recession | Euro | Crisis

Reuters Poll: US at 25% Chance of Recession Amid Euro Crisis

Wednesday, 14 December 2011 01:08 PM

The sovereign debt crisis crippling the eurozone still threatens other developed economies, a Reuters poll found. Britain and Japan are teetering on the edge of recession, but the U.S. is seen several paces away from a slump, economists said.

Reuters polls of over 250 economists taken over the past week found hatchets taken to 2012 forecasts for the eurozone, Britain, and Japan as ultra-loose monetary policies have failed to stimulate enough growth.

Once-booming economies in Asia have also felt the effects of the slowdown, but earlier on Wednesday China pledged to guarantee growth in the face of an "extremely grim" outlook for the global economy in 2012.

European Union leaders made an historic step towards fiscal union last week but there are fears it will not be enough to ease the sovereign debt crisis that has brought the bloc to its knees. Financial markets have reacted negatively.

"The move decided towards fiscal union can contribute to calm market fears, but not quickly," said Jean-Louis Mourier, economist at Aurel BGC.

The 17-nation bloc is already in a recession that will last until next April and growth will be flat next year, according to the latest Reuters poll.

Britain's 2012 growth forecast was slashed to just 0.6 percent from 1.0 percent a month earlier. Analysts gave an even chance that Britain, whose main trading partner is Europe, would fall back into recession within the next 12 months.

Economists predicted Japan's economy will shrink in the fiscal year to next March thanks to the yen's relentless strength as well as supply chain disruptions from a devastating earthquake earlier this year.

But the U.S. economy, the world's biggest, probably picked up speed in the last few months and will grow moderately in 2012, staving off the need for additional stimulus from the Federal Reserve.

U.S. growth was expected to average 2.1 percent next year, unchanged from November's poll, and more than half the economists polled said they do not expect the Fed to undertake another round of quantitative easing next year, known as "QE3."

"It's still this very gradual recovery, picking up a little bit more steam, but not really making up a lot of the ground that was lost in the labor market," said Scott Brown, chief economist at Raymond James.

A surprise drop in the unemployment rate last month to 8.6 percent, as well as relatively strong consumer spending has buoyed growth expectations for the current quarter, with forecasts revised up.

But gross domestic product growth is expected to slow sharply to 1.8 percent in the first quarter, providing scant relief to U.S. President Barack Obama ahead of an election year.

This expected deceleration is still better than November's forecast of 1.7 percent. For 2012 as a whole, growth is seen at 2.1 percent, unchanged from the survey last month.

"U.S. fiscal drag and euro instability will temper growth in 2012, but the growing recovery will remain intact and pick up in 2013," said Mark Zandi at Moody's Analytics.

The probability of the economy falling into another recession in the next 12 months remained unchanged from the November poll at 25 percent.

Some respondents noted their forecasts were contingent on the payroll tax holiday being extended.

After a year marked by political wrangling and deadlock, lawmakers are locked in a showdown that threatens the extension of a payroll tax cut for Americans, as well as aid to the long-term unemployed.

Some economists say not extending the tax holiday could hamper the economic recovery, as it puts less money in consumers' pockets.

At its annual policy-setting conference Beijing delivered a series of commitments to deliver economic stability, laying out a blueprint for the world's second-biggest economy in the year ahead. It promised to keep monetary policy "prudent," fiscal policy "pro-active" and consumer prices stable.

Deep Pockets

Major central banks have slashed interest rates to record lows and pumped trillions of dollars into the money supply in an attempt to heat up tepid growth.

The European Central Bank — which hiked interest rates earlier this year before performing an about-turn — is seen cutting them to a record low of 0.75 percent early next year.

Across the Channel, the Bank of England — which has already cut rates to 0.5 percent — is seen increasing its asset purchase program next year by an additional 75 billion pounds.

Analysts expect the Bank of Japan to stick to its ultra-easy monetary policy until the end of the fiscal year to March 2013 at least and also see a chance of further easing steps.

The BOJ has expressed its readiness to offer additional stimulus if its scenario of a moderate recovery is threatened.

"There is a possibility the BOJ will ease policy in January-March if share prices tumble and the yen further appreciates on the back of overseas dismay," said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute.

In that case, "The BOJ may top up its asset buying scheme or it may change what it buys in the scheme."

© 2018 Thomson/Reuters. All rights reserved.

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The sovereign debt crisis crippling the eurozone still threatens other developed economies, a Reuters poll found. Britain and Japan are teetering on the edge of recession, but the U.S. is seen several paces away from a slump, economists said. Reuters polls of over 250...
Wednesday, 14 December 2011 01:08 PM
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