The 2020 Mid-Year Economic Update_long

Global Economy Poised for Growth If Politics Don’t Get in the Way

A lot of pieces have to fall into place for the global economy to stay on course.
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The global economy may be poised for stronger recovery in 2013. The problem is that the largest economies in the world appear to be playing politics with that possibility.

In the U.S., new home sales were up year-over-year in 2012, even with a drop-off in December. And we're once again hearing of "cautious optimism" from businesses; the Fed has said it's prepared to continue its efforts to spur growth and employment. So what can go wrong?

"All that other U.S. policymakers have to do to ensure that 2013 is better than 2012 is avoid shooting themselves in the foot," writes Barry Eichengreen for Project Syndicate. Eichengreen is a professor of economics and political science at the University of California, Berkeley, and a former senior policy adviser at the International Monetary Fund. But if recent history is any indication, they might not be able to avoid that.

The outlook isn't much better for Europe. Prime Minister David Cameron is pushing forward with a referendum on whether the U.K. should stay in the European Union, a move that many say would cause significant instability and uncertainty in an already troubled European market. If the referendum passes, the EU would have to make concessions to get Britain to stay – something firmly opposed by Germany, arguably the most economically stable EU member right now.

China has grand plans to grow in the next five years, but there's still an underlying uncertainty about how much of that is real growth and how much is an artificial currency boost from the government.

As Eichengreen writes, the pieces are in place for a positive economic year, but if the political environment doesn't clear up, those pieces can't really be put into play.

Get the forecast for wholesale distribution markets in MDM’s 2013 Economic Outlook.

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