Economic Outlook 2012

International

Europe will remain center stage in 2012. Newly elected leaders in Portugal, Italy, Ireland, Greece and Spain will grapple with unsustainable budget deficits and weakening economies. Furthermore, labor unions and populist forces will resist reform. A broad recession is likely in Europe following needed revisions to the European Union charter. There is a rising probability of a Greek default on its foreign held debt.

GDP growth will remain positive in emerging Asia and Latin America as growing domestic demand helps offset a slowdown in exports. However, inflation concerns are starting to rise. After the earthquake and tsunami in Japan, rebuilding there will help offset some of the global weakness. Still, developments in Europe will be critical.

We like countries with low public debt and low current account deficits. Some of these are Norway, Sweden, Poland and Mexico. We also think countries with lower misery indexes (inflation plus unemployment) and good valuations are more attractive. Some of these are Norway, Taiwan, Chile and Indonesia. The international investing situation remains fluid and an active approach should be helpful.

Positives		Negatives
	Many foreign markets are cheap		Europe's debt problems are serious
	Some progress is being made in Europe		Inflation worries will mount in 2012
	Emerging Asia is still strong		Populist pressures resist reform in Europe
	Japan’s rebuilding will support global economic growth

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