Eurozone suffering still threat to other economies

Surveys 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 yesterday 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 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 poll.

Britain’s 2012 growth forecast was slashed to just 0.6 per cent from 1.0 per cent 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 US 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.

US growth was expected to average 2.1 per cent 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 labour market,” said Scott Brown, chief economist at Raymond James.

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

But GDP growth is expected to slow sharply to 1.8 per cent in the first quarter.

Beijing has delivered a series of commitments to deliver economic stability, laying out a blueprint for the world’s second-biggest economy in the year ahead.