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The debt crisis in the euro zone periphery shows little sign of prompt resolution, despite greater efforts from political leaders in recent weeks

The Economist Intelligence Unit has reduced its 2012 GDP forecast for the euro zone. We now expect the economy to contract by 0.3% compared with our previous forecast of growth of 0.8%. The debt crisis in the euro zone periphery shows little sign of prompt resolution, despite greater efforts from political leaders in recent weeks. Stress on euro zone banks is deepening; a much-discussed bank recapitalisation, if it happens, will be positive for sentiment, but it is likely to be a contentious process. Most euro zone economic indicators have turned negative, and a recession seems inevitable.

• We have also lowered our forecast for US economic growth in 2012 to 1.3% (from 2% previously). Contagion effects from the euro zone crisis, mainly on US financial markets and banks, will curb business investment and consumer spending. We now expect only some elements of Barack Obama's jobs plan, which would have been supportive for the economy, to be enacted. Unlike in the euro zone, though, most US economic indicators remain mildly positive, suggesting a measure of resilience by consumers in the face of severe economic shocks.

• Following on from our downgrades to euro zone and US economic growth next year, we have also reduced our growth forecasts for most emerging markets. Countries with significant trade exposure to the large Western economies will feel the greatest impact. We have lowered our 2012 GDP growth forecast for China to 8.2% (from 8.6% previously). China's government has the motivation and the means to stimulate the domestic economy if external demand falls too sharply.

• Asset markets continue to veer almost daily from a risk-tolerant to a risk-averse posture, based largely on developments in the euro zone, but also on economic data, especially from the US and China. Our forecast for slower growth in most countries next year implies a strengthening of safe-haven assets, such as the US dollar and developed-country bonds, and a weaker performance for risk-related assets, including equities, commodities and commodity-related currencies.

Global Economic Forecast, November 2011 is available to download, for free, at http://gfs.eiu.com
For more information contact:

Sophie Kriefman
Grayling on behalf of The Economist Intelligence Unit
Sophie.Kriefman@Grayling.com; +44 (0) 207 592 7924

About the Economist Intelligence Unit

The Economist Intelligence Unit (EIU) is the world's leading resource for economic and business research, forecasting and analysis. It provides accurate and impartial intelligence for companies, government agencies, financial institutions and academic organisations around the globe, inspiring business leaders to act with confidence since 1946. EIU products include its flagship Country Reports service, providing political and economic analysis for 195 countries, and a portfolio of subscription-based data and forecasting services. The company also undertakes bespoke research and analysis projects on individual markets and business sectors. More information is available at www.eiu.com.

The EIU is headquartered in London, UK, with offices in more than 40 cities and a network of some 650 country experts and analysts worldwide. It operates independently as the business-to-business arm of The Economist Group, the leading source of analysis on international business and world affairs.

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