Abheek Barua, chief economist, HDFC Bank, on why there's little hope for global growth next year and why investors should cash out if they see a rally
I am not sure how bad growth numbers will be for 2012.
Europe certainly looks wobbly with a mild recession having set into both the core and the periphery.
Germany managed to post robust numbers in the past because of its strong trade links with Asia, particularly China. But with Asian growth looking all set to moderate on the back of softer numbers from China, that support is likely to disappear.
European banks will continue to take a hit on their balance sheets owing to their exposure to sovereign debt. Thus, haircuts on their bond portfolios in the event of "managed default" by the likes of Greece, and marked-to-market losses on the back of rapidly escalating yields on peripheral debt, will erode capital - and, therefore, banks will continue to de-leverage.
So, credit shortage could become a serious handicap for growth in the region.
Besides, bailout packages continue to insist on fairly severe austerity for the recipients, which, in turn, will feed through to slower growth.
The market consensus for euro zone growth in 2012 is incidentally 0.5 per cent; I won't be surprised if we end up getting a negative print.
Image: A sign that was held up by Occupy Frankfurt activists stands next to the Euro sculpture and the European Central Bank in Frankfurt, Germany.
Text: Business Standard