For the last three years the world’s major economies – the US, eurozone and China – have been living up to the infuriating euphemism so beloved of policymakers – “kicking the can down the road”. They have been avoiding the tough decisions that are required to address their fundamental economic, financial and fiscal problems.
The US has postponed fiscal consolidation and structural reforms; the eurozone has been in denial of the fact that some of its member states are insolvent; and China has persisted in its export-led growth model where savings are too high and consumption too low. In all cases political constraints have led leaders to avoid the short-term costs of decisions that will yield benefits only over the medium term.
But these delaying tactics will become more difficult in 2012. Some eurozone members may need to coercively restructure their debts; China’s economy may come close to a hard landing; and US markets in the US may become more concerned about the ongoing political gridlock.
By 2013 or even earlier, a perfect storm of a double-dip recession in the US, a disorderly scenario in the eurozone and a hard landing in China could materialise. Continue reading »