(January 8, 2012) — While the US economy will grow by up to 2.5%, corporate earnings will fail to meet expectations, says Robert C. Doll, Chief Equity Strategist for Fundamental Equities at BlackRock.
“Growth will continue to be hampered by the lingering effects of the global ‘credit bust,’ including ongoing deleveraging partially offset by the forces of accommodative monetary policy in much of the world. Despite the ongoing debt crisis, however, an environment of modest economic growth will still allow corporate earnings to expand. This backdrop will allow equity markets to move higher, led by the US,” Dole wrote in a recent outline of predictions posted on the firm’s website.
The premier risk worldwide, according to Doll, is the financial breakdown in Europe, which he said has the potential to tip the entire developed world, if not the emerging world, into a new recession. “In 2012, the big swing factor for the world economy will be the success of the continuing effort to fix Europe’s debt and credit issues,” Doll wrote. “Failure to advance this effort could be disastrous.”
Doll continued: “At the same time, we don’t need Europe to solve all of its problems in 2012 for the world to achieve an ‘okay’ year…Since there is already such a significant ‘crisis premium’ baked into the markets, just avoiding disaster could be enough.”
On the more optimistic side of the equation, Doll noted that pockets of opportunity in 2012 include the US heading toward fiscal responsibility, the emergence of a US manufacturing renaissance, a housing recovery, and/or an increase in confidence. On the other hand, Doll’s list of key downside concerns included a systemic banking crisis in Europe, a double-dip recession in the US, a hard landing in China, a break-out of class warfare in the US, and a Middle East flare-up resulting in $150-per-barrel oil.
Doll is far from the only financial honcho to make predictions about the year ahead. Earlier this week, Goldman Sachs Asset Management chairman Jim O’Neill — credited for coining the acronym BRIC — predicted global GDP growth of 3.4% for 2012, slightly below economists’ expectations of 3.7% growth for this year and 4.1% for 2013.
Looking back on 2011, he said:
“In some ways, I found last year to be one of the more difficult ones to analyze that I can remember facing in my rather long time in this business. As the barometer of global risk, the S&P closed at 1257.60, almost unchanged from its closing level in 2010. This is virtually unheard of, and in itself, explains partly why 2011 was so difficult to analyze.”
In terms of BRICs and growth markets, the Goldman Sachs Asset Management chairman asserted that China will likely grow more slowly this decade than the last one. He continued: “What is less clear is whether the other 3 BRIC countries will grow by less, or more, than the last decade.”