2013 economic forecasts suggest we may look back fondly at doom and gloom - Macleans.ca

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.


  • 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.”


  •  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.


  • 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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