2013 economic forecasts suggest we may look back fondly at doom and gloom

With private debt on public debt on top of supra-national debt, the buck will stop in 2013

Dark clouds ahead for the global economy. (I am not I/Flickr)

Economically speaking, 2012 isn’t turning out to be a great year. We’ve seen stubbornly high unemployment in the U.S., the near collapse of the Greek and Spanish economies, a double-dip recession in the U.K., and, in Canada, underwhelming growth. But according to a number of recent forecasts, 2012 might very well glow in comparison to what’s ahead.

Nouriel Roubini, who’s risen to stardom in the world of economics by predicting much of what happened in 2008, expects pain across the board in 2013: “Every economy in the world is trying to push their problems to the future. (…) We start with private debt, public debt, supra-national debt–we’re kicking the can down the road and eventually this is going to come to a head in 2013.”

Here’s a quick roundup of the trouble to come:

The U.S.

  • Uncle Sam faces a slew of spending cuts–imposed after last year’s standoff over the debt ceiling–and tax increases slated for the end of this year. In a recent report, the Congressional Budget Office, called it a “fiscal cliff” that might send the country back into “a short recession” during the first half of the year. From the report: 

“CBO estimates that the combination of policies under current law will reduce the federal budget deficit by $607 billion, or 4.0 per cent of gross domestic product (GDP), between fiscal years 2012 and 2013. The resulting weakening of the economy will lower taxable incomes and raise unemployment, generating a reduction in tax revenues and an increase in spending on such items as unemployment insurance. With that economic feedback incorporated, the deficit will drop by $560 billion between fiscal years 2012 and 2013, CBO projects.”

  • The U.S. Treasury has already warned that the U.S. will need to raise the debt ceiling early in 2013–to which House Speaker John Boehner responded by promising the Republicans will put up another fight for more spending cuts. Last year, partisan saber-rattling around the debt ceiling cost the U.S. its AAA credit rating.
  • But even without a gargantuan debt burden, and hopelessly divided Congress, some say the U.S. economy would still hit the breaks in 2013. Jim Rogers, the prominent American investor and author, who founded the Quantum Fund with George Soros, had predicted as early as last December that “2013 is going to be a mess.” Rogers attributed this to the fact the U.S. economy goes into recession every four years, and the last one happened in 2008. He said this year’s presidential ballot will push the recession forward to 2013, as President Barack Obama will be “pumping money” into the economy to get re-elected.

Europe

  • Greece is still part of the eurozone, but it might not by 2013. Banks and governments alike are devising plans to deal with the potential mayhem of Greece returning to the drachma. And even if Greece is still a euro member six months from now, its woes will continue to drag down the continental economy.
  • The next few months will be critical for Spain, the country with the highest unemployment rate in the eurozone (24.4 per cent). They will also set the tone for relations between France’s new president François Hollande and German Chancellor Angela Merkel–both of whom embody the current European dilemma of growth (Hollande) versus austerity (Merkel). Much of what happens in 2013 will be the result of how these two unfold over the coming months.
  • One thing will sure add to the uncertainty: Germany will hold an election in 2013, and Merkel’s re-election is not exactly guaranteed. She will face Social Democrat Peer Steinbrueck, a former finance minister who just earned an endorsement by none other than former Chancellor Gerhard Schroeder, the man credited for Germany’s “economic miracle.”
  • Last but not least, the OECD has just issued a warning that Europe as a whole could face a “severe recession” next year that would have consequences for “the rest of the world.”

China

  •  With Europe in a funk, China might not be able to pull the world out of recession in 2013, as it did during the Great Recession. Depressed consumption from the eurozone is believed to be the lead cause of weak export growth in China. And since economic growth in the Middle Kingdom is still very much pegged to foreign, rather than domestic consumption, a number of economic indicators–including, crucially, industrial production–have come in below analysts’ expectations.
  • China is also grappling with its very own housing bubble, whose weigh on GDP is double that of the real estate sector in the U.S. just before the financial crisis, according to CIBC’s Peter Buchanan.

Canada

  • Needless to say, all of the above will influence the national economy. The real estate market, coupled with high levels of household debt, worries some analysts.  Canada faces the possibility the real-estate bubble will burst in 2013. Sure, we’ve heard it all before. Yet some are predicting the Bank of Canada will soon raise interest rates (possibly as soon as Tuesday), which could very well be what makes things go “pop.”



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2013 economic forecasts suggest we may look back fondly at doom and gloom

  1. Canada has Eurosclerosis….it’s economically stagnant.

    “The new Tory government’s election platform said
    it would “stand up” for Canada’s Big Four “traditional
    industries.” They are agriculture, forestry, mining and fisheries, four
    great core activities that drove Canada’s economic development through a couple
    of centuries.”

    http://www.financialpost.com/scripts/story.html?id=20c9d478-a47c-42fe-86e9-c5c3f67e4a77&k=72354

    Much of the ‘west’ is the same….we’re sitting on our complacent asses instead of moving ahead from the ‘old days and old ways’.

    This will certainly slow the growth of developing nations….but not for long.

    It’s the decline of the west. The end of an empire.

    • According to Harper, Canadians are mere hewers of wood and drawers of bitumen. The more I read of his “economic action plan” the harder I find it to believe we are in the 21st century. Then again neo-cons like him who are at war with post-war centrist government — and living standards — want to wind back the clock to the 19th century. So its par for the course (if disaster is the course…)

      • We’ve been trying to diversify the economy for decades…(centuries?)
        It’s time we owned up to the fact that Canada is a nation of bounty and the bounty needs to be reaped.
        We aren’t meant to be competing in the cell phone market, or producing movies, or making cars…..we’re meant to dominate the land and squeeze it for it’s bounty.

        Time to accept fact.

        • That’s an interesting variety of fatalism.

        • Why is this so bad? Land. In this future, the one who will soon come, the one having land, will eat. It’s not fatalisme, but there is nothing left to discover.

      • The natural resources industries employ many highly educated people and are spurring technological advancement that rivals the high-tech manufacturaing sector. The oil sands employs environmental scientists, engineers, and chemists, among others. The new in-situ mining is a high-tech process, and the need for environmental solutions to pollution is driving continued technological advancement. The natural resources industry is not what is once was, and it is a mistake to think that it does not contribute to a highly-educated, knowledgeable, technology-driven workforce.

        • The bitumen dollar is destroying the value-added sector in Canada. The skilled jobs created by the bitumen sands development are a fraction of the ones being destroyed. 94% of the GDP that is produced by the oil sands stays in Alberta. We obviously can’t base the entire Canadian economy on it.

          Besides that the tar sands rely on a high price of oil. It costs $60/barrel to process the easy stuff; $80+/barrel to get at the harder stuff buried deep in the earth. So Alberta is in danger of facing an oil bust worse than the mid-1980s.

          It’s a bad bet to go all-in on bitumen. Unfortunately for Canadians, Harper can’t see beyond the resource welfare checks.

          Crude glut, price plunge put oil sands projects at risk

          http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/crude-glut-price-plunge-put-oil-sands-projects-at-risk/article4230759/

    • so what???? give up??? buy guns and prepare for the zombie apocalypse??? get your head out of your ass….%$&^^&ing doomsdayers

  2. don’t worry, if there was going to be a recession we would have had it by now.

    • Unfortunately for Canadians, all Harper has to offer on the economy is similar lame generalizations. Maybe we can politick and propagandize our way out of the global depression caused by reckless free-market reforms that Harper still advocates. Maybe we can bring about a recovery by spending tens of millions of taxpayer dollars on TV commercials that promote the Harper Government. Probably not.

      Harper says time running out to tackle eurozone’s woes
      http://www.cbc.ca/news/world/story/2012/06/05/stephen-harper-peter-mansbridge-interview.html

      • All have been talking about US , China, Europe , Canada but equally important is India also. Even though India is domestically strong from the domestic demands , I feel 2012 -2013 F.Y would see week growth due to political reason and the Anna , Baba Ramdev effect. 2014 being the Election year for India, Government will come out of its paralytic attack on policies and the growth path would be set right.

  3. Well, yeah … we’re getting rid of per-vote party funding.. everyone knows that
    if the perfidious coalition had let us do that in the face of the initial crisis it would
    have solved everything. We’re all good here.

  4. Debt is not the problem. It is a symptom of the problem which is stagnant economic growth. A country can’t pay its bills if its economy is not growing. If it implements austerity measures it kills growth causing tax revenues to fall which produces higher deficits. In other words, it’s self-defeating.

    In the post-war era, we solved the same problem using centrist Keynesian economics. We produced a 30-year economic boom, with a tide that raised all boats — not just the yachts (like over the past 30-year free-market era.) We started off with 100% debt/GDP but paid it down to 17% (it’s now back up to 84%.)

    Like Keynes said, the boom not the slump is the time to impose austerity measures. Like the UK example clearly proves, we will be stuck in a slump for a very long time until we finally figure out that free-market ideology is the problem.

    BTW, Harper’s backward and shortsighted economic policies (like turning Canada into a “resource super-power”) will be sure to cause a made-in-Canada recession before the 2015 election. Europe and America are the least of our worries.

    • All that happens during a boom is a constant clarion call for more spending to keep up with all the demands. Since the boom is on, special interest groups say the spending is affordable and if you don’t fork it over you’re heartless.
      During a recession we’re told more spending is needed for stimulation.

      Keynes was wrong.

      The next four years will be very good to Canada. Especially with Harper in charge.

      • How can Keynes be wrong when his system produced incredible results, especially compared to the disastrous free-market eras that preceded and proceeded it?

        During the Keynesian era we ran small deficits and surpluses that ran counter cyclical to the business cycle (which produced the mildest economic cycles in history.) That allowed us to pay down most of our government debt. Most of the debt we incurred happened over the past 25 years of free-market reforms predicated on reckless tax cuts that never “paid for themselves.”

        Fact is Canada has been cutting social spending over the past 25 years. We now rank #23 among OECD countries. Yet since Harper has come to power he has slashed taxes by over $30B/yr. Like America, Canada doesn’t have a social spending problem: it has a problem doling out free-money tax cuts to the rich with zero benefit to the economy.

  5. Canada desperately needs intelligent responsible government. Harper and his mobsters should be executed for the damage they’ve done to Canada, and what they haven’t done to improve the economy in Canada. Although judging from recent activity within the RCMP they may be able to arrest Harper and other officals and set them on the same road as Rob Ford.

  6. Glad you were wrong about the “pop”. Just goes to show you that it’s almost impossible to predict.

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