BIS: Growth Forecasts Continue to Drop, Even in Asia

In its quarterly finance and bank review, the BIS reports that 2012 growth rates for the euro area have dropped from 1.5% in June to 0.4% currently. The U.S. GDP growth rate has declined over the same period from 3.1% to 2.1%. The BIS does not acknowledge a pick-up in consumer activity in America in the past month. And the prediction of the growth rate in Asia has dropped considerably, from 5.8% in June forecasts to slightly below 5%. Japan is not included in these Asia numbers.

The BIS forecasts for Asia already have been largely confirmed by drops in the Chinese PMI and export levels. Most of this deterioration is due to a slowdown in the economy of the EU, which is still the GDP leader in the world by size. The chance EU financial troubles could have an economic domino effect across the developed and developing world rises each day.

The BIS has a reputation as an objective observer. It is not tied to any region or political group. The most prominent part of its new report was that:

News on the euro area sovereign debt crisis drove most developments in global financial markets between early September and the beginning of December. Amid ratings downgrades and political uncertainty, market participants demanded higher yields on Italian and Spanish government debt. Meanwhile, difficulties in meeting fiscal targets in a recessionary  environment weighed on prices of Greek and Portuguese sovereign bonds. Conditions stabilised somewhat in October on growing optimism that the end-month EU summit would propose comprehensive measures to tackle the crisis. But by November, investors were growing sceptical about the adequacy of some of these measures. Sovereign bond yields then rose across the euro area, including for higher-rated issuers.

The comment seems to be fair, since there is so little data that would support the contrary.

Douglas A. McIntyre