Dreyfus

We believe that a full-scale global recession is unlikely, assuming that there is no major oil price spike from a disruption of the flow of Middle East oil. We believe that a key cause of global economic expansion will be the easy monetary policy prevailing in many regions and countries worldwide. We expect a global growth recession in 2012, with declining economic activity in Southern Europe, an economic stall or temporary declines in the U.K. and much of Northern Europe, a moderate slowdown in emerging markets and a U.S. expansion at a near-trend pace in 2012, somewhat faster than last year.

For 2012, we have three themes and three risk concerns. The three main themes are (1) global growth recession, (2) lower inflation for now and (3) monetary ease. The three main risk concerns are (1) the European financial stresses, (2) the Chinese property market and (3) the Middle East risks, with oil supply vulnerabilities as the main concern. We expect a global growth recession in 2012, rather than either a strong global expansion or a fullscale global recession.

The most likely outlook for the world economy in 2012 is a global growth recession. The economic outlook reflects disparate trends in different regions: a full-scale recession in Europe, stagnation or moderate recession in the nearby U.K., near-trend growth in the U.S., continued expansion in Japan and moderate slowdowns in China and most other emerging market countries. While European financial stresses are serious, the global shift towards monetary ease should help mitigate the spillover effect. The result should be a global growth recession rather than either a full-scale global recession.

The global economy can weather a mild eurozone recession, but is too fragile to absorb a severe financial shock such as a breakup of the euro. Higgins expects Central and Eastern Europe are likely to be most negatively affected by a eurozone recession, followed by the UK, the US and other advanced economies, given their respective trade dependencies. The least vulnerable regions would be Asia and Latin America. Long-term value in popular safe havens such as U.S. Treasuries and gold, preferring to focus on U.S. non-financial corporate credit as well as emerging market local currency debt.