Slideshow Will, May or Won't: UBS Predicts 15 Events (Or Non-Events) of 2012

Published
  • December 09 2011, 6:58pm EST
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5 + 5 + 5 = 2012

Here are UBS Financial Services' forecast for five events that will happen, five that may happen and five that won't next year. All of them could have an impact on the global economy and the results will affect financial advisors and their high-net-worth clients.

WILL HAPPEN: European Sovereign Credit Quality WILL Deteriorate

“A potential Greek default would be most dramatic illustration of this trend but a downgrade of France’s AAA rating would be a potential game changer in Europe. France might well become the defender of the Mediterranean countries, instead of shadowing Germany as it does now.”

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WILL HAPPEN: Global Growth Earnings WILL Stall t

UBS says: “Decelerating global GDP growth rates and tougher year-over-year comparisons," and adds that "consensus estimates for 2012 corporate profits for the S&P 500 are still to high at about $108 per share." Finally, UBS notes: “Look for S&P 500 earnings to rise by only 0% to 5% to the $98 level." The firm also says that "the threat to profit growth is even more pronounced in Europe.”

WILL HAPPEN: Risk Premiums WILL Remain Elevated

“Given the challenging macro backdrop and continued uncertainty on the leadership front” expect these premiums to stay elevated next year.

WILL HAPPEN: Central Banks WILL East Further

“Each of the major global central banks will be pursuing easier monetary policy conditions for the first time since the financial crisis,” UBS says. But the “pace and scope of the scope of policy actions will differ across regions.”

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WILL HAPPEN: Economic Growth Prospects WILL “Decouple”

UBS says: The U.S. and emerging markets continue to expand “even as Europe falls into a shallow recession.” The firm also says: "Look for the U.S. to expand at a modest but sustainable pace during 2012 barring a global credit crunch.”

MAY HAPPEN: Bank deleveraging MAY Create a Global Credit Crunch

“European bank will likely need to shed assets in an effort to further delever balance sheets in the absence of any material capital infusions.”

MAY HAPPEN: Geopolitical Tensions MAY Lead to Another Energy Shock

"A further escalation of tensions in the Middle East could prompt yet another energy shock that threatens global growth. The most critical flashpoint in the region is Iran...the second-largest producer in OPEC...and estimated to have the third-largest oil reserves in the world."

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MAY HAPPEN: The Eurozone MAY Take Decisive Steops Toward a Fiscal Union

German Chancellor Angela Merkel has "held firm on the need for budget reforms as a pre-condition for any deeper integration...Merkel has forced weaker players to undertake necessary but painful reforms."

MAY HAPPEN: U.S. Capital Expenditure MAY Accelerate

"Corporate balance sheets are in better shape than they've been in over half a century. Lack of conviction about the broader macro outlook and limited investment opportunities have prompted CFOs to hoard cash over the past several years."

MAY HAPPEN: Crises MAY Erupt in Individual Emerging Market Economies

"There is a risk that selective emerging market countries in Central and Eastern Europe could be vulnerable to crisis." Watch out Poland, Turkey, Hungary, the Ukraine, the Czech Republic and Romania.

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WON'T HAPPEN: U.S. WILL NOT Achieve Meaningful Fiscal Consolidation

"Washington has little appetite for fiscal austerity - especially before the 2012 presidential election," UBS says.

WON'T HAPPEN: China WILL NOT Experience a Hard Landing

"Fears that China is headed for a hard landing are overblown," UBS says. "Look for China to grow at a relatively healthy 8% clip in 2012. The country will certainly be impacted by a recession in Europe...the Bank of China has greater latitude to loosen monetary policy."

WON'T HAPPEN: Eurozone WILL NOT Break Up in 2012

"A break up of the pan-European common currency is neither desirable nor a solution to the problem. The costs associated with dissolution of the euro would be staggering—even for the strongest players in the union."

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WON'T HAPPEN: Social Unrest WILL NOT Subside

Citing the Arab Spring and the Occupy Wall Street movements, UBS says: "The growing sense of dissatisfaction...is likely to become a more permanent feature of the political and social discourse in 2012."

WON'T HAPPEN: The U.S. Dollar WILL NOT Lose Its Safe Have Status

UBS still doesn't see any serious contender to the dollar.