A World View of the Economy in 2012

January 6, 2012

The beginning of the New Year brings an opportunity akin to other pundits about how trends or results will come to the fore in 2012. Given the enormous range of possibilities, I will limit my choices to the country level, options that leave out questions about the fortunes of specific international organizations, economic sectors, and non-state actors (including celebrities) that I remain interested in but will leave for other postings.

On the forecasting question no commentator can avoid the U.S. presidential election. Mitt Romney may beat President Barack Obama if he can overcome a series of ifs. That is to say, if the Republican hopeful can persuade evangelicals and Tea Party types that a moderate Mormon former Governor of Massachusetts should represent the GOP. If Ron Paul doesn't jump over to an independent libertarian bid and split the vote in Obama's favour. If the young college students and left/progressive activists who mobilized around Obama in 2008 don't sit this election out, and if gas prices or unemployment figures don't jump higher close to or even on election day. Obama is certainly beatable but this may be a case of a few two many ifs!

It is tempting to simply say there will be another crisis as usual in the Eurozone, with austerity measures becoming more embedded. But the damage this year will likely extend to the global image of the E.U. The expectation has been that Europe is at the core of an evolving multipolar world. However, with declining resources and rising brittleness among the E.U. members, this assumption will be more severely challenged.

The right of the major European powers to hang on the institutional status will come under stain from the challenge of rising powers. And as the social attractions of Europe diminish -- although not of course the more successful nation states notably Germany and Sweden -- the E.U. will lose ground in the "soft power" global sweepstakes.

The UK will continue to resort to the old adage: "Fog in channel; Continent cut off!" This differentiation from Europe will be magnified by several major events, above all the celebrations over the Queen's Diamond Jubilee in 2012, including an official Jubilee Weekend on June 2-5 , and the London Olympics.

Nevertheless, the UK will continue to struggle with its deficit and debt problems. The Conservative-Liberal Democrat coalition dynamics will become increasingly problematic and cut into the effectiveness of government. At the same time, another controversy will simmer about whether PM David Cameron is -- or should -- move towards a pre-emptive, Westminster-led referendum on Scotland's secession from the UK.

India -- and the government of PM Manmohan Singh -- will use the March 2012 summit of the BRIC states to refurbish its image internationally, to offset domestic concerns, and image problems related to corruption and inflation, as well as push back on external reform. But the positive nature of the BRICs brand will be contested. In part this will be due to challenges of a similar type to India. Although boosted by the start of the qualifying process for the 2014 FIFA World CUP, Brazil will face problems quite similar to India with a focus on political corruption, inflation, and the push back to protectionism.

However, the democratic credentials of India and Brazil will continue to be robustly displayed. In contrast Russia will continue to face a choice (as in the Middle East) of either easing up on managed democracy or being more overtly coercive. And what about South Africa? Is the expulsion of the prominent youth leader Julius Malema from the African National Congress, the end or the start of a very different chapter in the challenge to President Jacob Zuma?

China deserves special treatment given its geo-political and economic position. But in several ways, it will be the similarities with the U.S. that jump out. These showcase the blend of traditional hard sensibilities about sovereignty with a heightened sense of internal difficulties about inequality. The unanticipated form of parallelism that is most striking comes out in the political uncertainties and immobilization associated with a protracted form of transfer of power. That said, there are still abundant Chinese characteristics about this process related to the scope of the generational transfer of power.

If the BRICs will continue to garner attention, this cluster could be overshadowed by other ambitious if far from problem-free countries. At one level middle states -- neither G7/8 countries or BRICS -- will have a prominent year. At the forefront of this trend will be the so-called MIST countries. Mexico is the host of the G20 summit at Los Cabos in June 2012, South Korea hosts a three-month expo at Yeosu, and Indonesia and Turkey will continue to play the combined role of magnets for foreign investment and key regional actors.

Canada and Australia will further distance themselves from the familiar mediator/facilitator approaches of the past, playing up far more explicitly their national interests as defined by their governments and key business groups. The security agenda will be heavily although not completely influenced by the U.S. whether on borders in the case of Canada (a "Next Generation" integrated border enforcement team will be established before the end of 2012) or bases in the case of Australia (with an agreement that allows U.S. forces -- called a Marine Air-Ground Task Force (MAGTF) -- access to the bases in the Northern Territory, including one in Darwin).

However at the same time, both Canada and Australia will aim to extend their export profile with "emerging" markets both BRICS and beyond.

Finally, some smaller countries will continue to play about their size category. Qatar had a very good year in 2011, albeit taking risks in going out ahead of the Arab League on both Libya and Syria, and using its impressive soft power tools via Al Jazeera and related social media.

It also consolidated its diplomatic credentials with the election of Nassir Abdulaziz al-Nasser as President of the United Nations General Assembly in June. Can it raise the stakes still further in 2012 in a neighbourhood full of tensions but also with opportunities for diplomatic skill?

As a maverick -- willing to take further risks such as the possible positioning of a political office by the Taliban -- in a world that gives such differentiated privileges to bigness, this could be the narrative that makes considerable impact in the coming year.

But, like all the focal points of my predictions, nuanced updates will be needed through 2012.

This article also appeared in the Huffington Post Canada.

The opinions expressed in this article/multimedia are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors.

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