Energy Industry Trends Review

Economic outlook
Key trend—Global GDP growth is expected
to moderate to around 4 percent through
2012, from more than 5 percent in 2010.
Real GDP growth in the advanced economies
is projected to expand at a slow pace
of only 1.5 percent in 2011 and 2 percent in
2012; the slowdown reflects crisis-hit advanced
economies, notably the continuing
sovereign debt and banking sector problems
in the Eurozone and the continued uneven
economic recovery in the United States.
China’s GDP growth is forecast slightly
lower for 2012 at 9 percent (compared to
9.5 percent forecast for 2011), largely due
to a decline in contracting manufacturing
and rising inflation. 12
The slowdown starting in 2011 reflects
developments in crisis-hit advanced
economies like the Eurozone, where
sovereign debt and banking sector problems
have proven more tenacious than expected.
Real GDP growth in the major advanced
economies is forecast to rise only modestly,
from about three quarters of a percent in
the first half of 2011 to about 1.5 percent
in 2012, as the effects of temporary
disturbances abate and the fundamental
drivers of expansion slowly reassert
themselves. Activity is expected to be more
robust in a number of other advanced
economies, especially in those with close
ties to emerging Asia. 13
In emerging and developing economies,
GDP growth is expected to fall from about
7 percent in the first half of 2011 to
about 6 percent in 2012; this slowdown
in growth is regarded to be mainly due
to capacity constraints, policy tightening
and slowing foreign demand. Inflationary
pressures continue to concern emerging
and developing economies with headline
inflation expected to settle at about 6
percent in 2012, down from more than 7.5
percent in 2011, as energy and food prices
stabilize, but demand pressures drive core
inflation. Inflation is expected to stay high
through the period 2011–2012 in the former
Soviet Union, MENA (Middle East and North
Africa) and Sub-Saharan Africa regions,
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averaging 7 to 10 percent. Some economies
are seeing noticeably higher inflation than
their regional peers; for example, Argentina,
India, Paraguay, Venezuela and Vietnam. 14
Observation
The turmoil in the Eurozone continued this
quarter, with the bailout of Greece now
confirmed. With the prime ministers in
Greece and Italy resigning and the centerright
party winning the general election in
Spain, the pace of developments continues
to be dramatic. The Eurozone economy
managed only modest growth in the third
quarter of 2011, with a rebound in Germany
and France failing to dispel fears of a
looming recession across the 17-country
region. However, it is evident that the third
quarter has been much shielded from the
financial market turbulence, with the real
impact not expected to be fully felt until
the next quarter and in early 2012. For
example, the Organization for Economic
Co-operation and Development (OECD) is
also forecasting that the United Kingdom is
entering a recession. It predicted that the
UK economy would shrink by 0.1 percent
this quarter and 0.6 percent in the first
three months of 2012. As of the beginning
of November, new Italian prime minister
Mario Monti was ready to announce his
government while new Greek prime minister
Lucas Papademos will face a vote to give
him a three-month mandate to implement
the new austerity budget measures, and
overall, the situation in Europe remains
volatile. 15
The shift in focus of the Eurozone crisis
has brought Italy and Spain more into the
spotlight. Italy accounts for 17 percent
of Eurozone GDP and 23 percent of total
Eurozone debt. Italy’s gross debt as a
percentage of its GDP is second only to
Greece at around 121 percent, compared
to 166 percent for Greece. 16 The situation
in Spain continues to concern markets, as a
more conservative government has won the
general election there and is not expected
to drive through the necessary reforms to
prevent contagion there.
What is surprising about the International
Monetary Fund’s (IMF) 2012 forecasts is
the view that the Japanese economy is
estimated to grow by around 2.3 percent,
(compared to growth estimates for the
United States of between 1.5 and 2 percent,
and the Eurozone by around 1 percent). This
forecast signals that Japan is expected to
start recovering from the current crisis, but
also that the situation in the United States
and the Eurozone is generally not expected
to change. Japan is currently taking steps
to make its oil supply chains more disasterresistant,
due to lessons learned from
serious fuel shortages in the wake of the
March earthquake, when Japan’s domestic
refining capacity at one point fell to about
2.7 million b/d (900,000 barrels short of
daily demand). 17
This quarter also saw less positive growth
news for China: with GDP growth forecast
lower for 2012 at 9 percent (from 9.5
percent in 2010), largely due to a decline in
manufacturing and rising inflation. Some
banks like Standard Chartered Bank, for
example, have revised their GDP growth
forecasts for China. Standard Chartered
Bank has lowered its China GDP forecast
for 2012 from 10 to 8.5 percent, saying,
“Inflation has remained more elevated and
domestic growth momentum has slowed
more gradually in 2011 than we forecast.
This has delayed the turn in policy—China’s
monetary policy was not loosened in third
quarter 2011 as we expected … momentum
has clearly been lost in manufacturing
growth, and CPI (consumer price index)
inflation has now peaked, we believe.” 18
Some analysts are forecasting more of
a “hard” landing for China, not from its
economic slowdown but, rather, from some
more structural factors such as inflexible
exchange rates, high property prices and
pure demographics, which will see the
influx of rural labor into the cities fall off
and increasing social inequality, leading
to potential rapid wage inflation and
social unrest. 19