I've been listening to plenty of predictions and such over the last year or so, and the most likely scenario I've heard is that the worldwide policies that lead to the 2008 crash (basically, a decade or so of growth that was funded largely by borrowing across most of the civilized world) have put us pretty deeply into a ****hole. The 2008 crash should have caused a lot more damage than it did, a 1930s style depression wasn't out of the question by any means, but the governments of the world got in and nationalized a buttload of debt. This headed off the initial crisis, but also took away the economic capability of the taxpayer to buffer future, smaller shocks (not to mention destroyed the political capital of governments to intervene in big ways).
I'm not saying the Euro crisis is a "smaller" shock, exactly, but if 2008 hadn't happened:
a) The European governments in debt would probably have lasted a lot longer before their houses of cards came crashing down - not necessarily a good thing (see the size of the US debt for what happens when governments are seen as limitless sinks of security), but it would have meant the crisis wasn't happening in 2011 (yet). And even if it had occurred in this alternate, non-recession hit 2011:
b) The populations of the European nations not so badly in debt would most likely have been a lot more willing to help out their neighbours, without 3 years of slow growth caused by the banking crisis.
The point is that until nations, markets and populations recover both their nerve and their financial strength, every small crisis that comes along is going to be magnified into a much larger crisis, for no other reason than the lack of government (or market, or anybody's) capability to respond to them effectively. The result will very likely be a long period - the estimates I heard were around 20 years - of slow, patchy growth, constantly shaken by this or that new market instability. This euro problem is the first but it wont be the last.
So, predictions for 2012, then.
1) The Eurozone will shrink, but it wont break up. At this point, the smaller Euro nations are being held in against their own direct economic interests because they've been convinced that a breakup of the Euro is worse for them as part of Europe. But think about it. If, for example, Italy were to break away from the Euro and return to the Lira, they could devalue their currency, encourage tourism and promote exports - i.e. the standard feedback buffers that exist in every independent nation's economy. The problem, of course, is that the Euro is being held artificially high (in these nations) by stronger economies, most notably Germany. Of course, if the Euro were to break up entirely, the new German Mark would shoot up in value, since it would no longer be held down by its weaker partners. This woud hammer Germany's auto and manufacturing sectors, which are currently getting a boost from an artificially low euro. See the non-mining economy in Australia right now as an example - mining is keeping the AUD at US$ parity (or above), which is hammering manufacturing, and even mining wouldn;t be viable if it weren't for massive commodity prices.
2)Commodity proces will fall. Significantly, but not sharply, more like a gradual decline as demand drops. Year end 2012 I reckon we'll see coal and iron in particular down much lower than they are now. Oher base metals to, most likely. Currently, they're being kept high by demand in China (and to a lesser extent other big developing nations like India and Brazil). Why? Because, well, if China does have a major crisis, then all bets are off, but even if not, I think that a lot of the developing world's growth is still based on a pre-2008 paradigm, when it was simply assumed that the developed world would keep buying their stuff at massive rates. And since the 2008 recession had relatively little impact on them (Chinas annual growth dropped from 11 percent to 7 or 8 (and yes, I know this was somewhat inflated, but the fundamental strength was still there), I don't think the changes in the world really filtered through. Plus the boost provided by stimulus spending has only really run out in the last 12 months or so. But sooner or later, things have to bite. European austerity and American recession are already and will continue to have a negative effect on the sale of developing nation's products. This will slow growth in those countries, and the mad pace of building (which is what has drove the commodity prices up in the first place) will slow down. Short of true catastrophe, I don't see China falling into recession (they've been developing domestic demand enough that it will eventually be enough to keep them stable, and frankly they still make just about everything we use over here in the West - even if we buy less, we wont stop buying entirely).
There's a bunch of crap connected to that - our mining boom will slow down, and investment in exploration will drop off again, just as it did in 2008. Which is a prick of a thing for me, an exploration geologist (who was sacked along with every other geo in the company when the GFC got us). So thanks a lot northern hemisphere. But I can't be bothered typing any more, insomnia or not.
TL;DR
- The easy ride that the past few generations have had wont apply to us.
- 20 years of crappy economies
- You northern punks are going to get me sacked. Again.
