Economic growth will continue to be hampered this year by the lingering effects of the global credit crisis. Those effects will include ongoing deleveraging, albeit partially offset by accommodating monetary policy in much of the world. Still, modest economic growth will be enough to allow corporate earnings to increase, which will provide the backdrop for equity markets to move higher, led by the U.S.
The most significant global risk remains financial breakdown in Europe, which, if it happens, would tip the entire developed world, and possibly the emerging world as well, into a new recession. In 2012, the big "swing factor" for the world economy will be the success of continuing efforts to fix Europe's debt and credit issues. Failure in this effort could be disastrous. But 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, simply avoiding disaster could be enough.
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