The Global Economy in Turbulent Times

CHAPTER 18 TW3 2012: A Tough Year with a Bleak Outlook¹

The year 2012 is coming to a close, leaving behind many problems. Most are man-made, originating in politics. Yet, sadly, there are no major political leaders who have the credibility, charisma, and strength of character to garner the needed political resolve to set their own nations or the world on the righteous path of sustainable development.

The reelection of US resident Barack Obama helped a little. As I write, even if he is able to persuade opposition Republicans in Congress to a deal to avoid the looming “fiscal cliff” (self-inflicted arrangement involving US$600 billion of indiscriminate tax hikes and “sequester” cuts in military and welfare spending, bringing on a 3 percent reduction in 2013 fiscal deficit), the resulting cuts and taxes will invariably become a drag on growth—estimated by most to be at least 1 percent of gross domestic product (GDP) in 2013. The downside risk to global growth is likely to be exacerbated by the spread of ongoing austerity to most advanced nations. Thus far, the recessionary fiscal drag has been centered on the eurozone periphery and the United Kingdom. Latest indicators point to it spreading to the eurozone’s core (including Germany and France) and Japan. This only confirms the International Monetary Fund’s (IMF) contention that continuing excessive front-loading of fiscal austerity will work to dim global growth prospects in 2013. The recent near-simultaneous leadership changes ...