What Lies Ahead in 2011?

Attempting to discern the economic prospects for 2011 is not a particularly interesting question: the answer is bleak, with little upside potential and a lot of downside risk. More importantly, how long will it take Europe and America to recover, and can Asia’s export-dependent economies continue to grow if their historical markets languish?

NEW YORK – The global economy ends 2010 more divided than it was at the beginning of the year. On one side, emerging-market countries like India, China, and the Southeast Asian economies, are experiencing robust growth. On the other side, Europe and the United States face stagnation – indeed, a Japanese-style malaise – and stubbornly high unemployment. The problem in the advanced countries is not a jobless recovery, but an anemic recovery – or worse, the possibility of a double-dip recession.

This two-track world poses some unusual risks. While Asia’s economic output is too small to pull up growth in the rest of the world, it may be enough to push up commodity prices.

Meanwhile, US efforts to stimulate its economy through the Federal Reserve’s policy of “quantitative easing” may backfire. After all, in globalized financial markets, money looks for the best prospects around the world, and these prospects are in Asia, not the US.  So the money won’t go where it’s needed, and much of it will wind up where it’s not wanted – causing further increases in asset and commodity prices, especially in emerging markets.

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