Chindia 2012

Despite slowing down, China and India continue to contribute more than half of the world’s economic growth, a new report by an investment management and advisory services firm has claimed. The report by BlackRock Investment Institute’s (BII), ‘The Year of Living Divergently’, says 2012 will offer investors a slow growth world in which the United States will face headwinds, yet still achieve positive economic growth, and Europe will likely slip into recession while avoiding more dire financial contagion. Robert C Doll, chief equity strategist for fundamental equities at BlackRock, said growth will continue to be hampered by the lingering effects of the global “credit bust”, including ongoing deleveraging partially offset by the forces of accommodative monetary policy in much of the world. According to the report, emerging market economic growth continues to be a critical part of global growth in both the short and long-term. “China and India are especially important given both their size and growth rates. And while growth in both countries is likely to be slower in 2012 than it was in 2011, together these two countries will account for more than half of 2012 global growth,” it said. “We expect China will account for more than 40% of global growth, with India and the US accounting for about 15% each. Until recently, increasing inflation in emerging markets has caused policymakers to raise interest rates and/ or reserve requirements in an attempt to slow inflation, with the effort of dampening growth. We expect that process will begin to reverse itself sometime in 2012,” it further said. According to Doll, the most significant global risk remains the financial breakdown in Europe, which would tip the entire developed world, if not the emerging world, into a new recession. “In 2012, the big swing factor for the world economy will be the success of the continuing effort to fix Europe’s debt and credit issues,” Doll said. “At the same time, we don’t need Europe to solve all of its problems in 2012 for the world to achieve an ‘okay’ year,” Doll said. “Since there is already such a significant ‘crisis premium’ baked into the markets, just avoiding disaster could be enough,” he said. In addition to movement in Europe toward resolution of its debt crisis, Doll’s “what can go right” list for 2012 includes the US heading toward fiscal responsibility, the emergence of a US manufacturing renaissance, a housing recovery and/or an increase in confidence. On his list of key downside concerns are a systemic banking crisis in Europe, a true double-dip recession in the US, a hard landing in China, a break-out of class warfare in the US and a Middle East flareup resulting in a $150-per-barrel oil price.