International outlook for 2012.

• Author: Mafi-Kreft, Elham

The significance of international trade to the U.S. economy, as well as the world economy, is undeniable. For decades, the U.S. has led the world in imports, while it has also remained one of the top three exporters. According to a recent paper from the National Bureau of Economic Research, the rise in U.S. exports since the end of the last recession contributed more than 50 percent to the growth of U.S. gross domestic product (GDP). Exports from the United States tend to respond to GDP growth in the rest of the world, as well as to the international value of the dollar.

The main export partners of the U.S. are Canada, the European Union, Mexico, China and Japan. This article will provide a forecast of the global economy in 2012 with an emphasis on these trading partners since they are greatly affecting the U.S's path to a timid recovery. More than ever we are observing the inter-linkages of the world's economies.

The economic growth around the world looks to remain relatively stable in 2012. The International Monetary Fund projects the world's output to grow at 4 percent. This growth is powered by the emerging economies, while the developed world is lagging behind again this year.

China

China's outlook is positive but slightly slower than the previous two years. The world's second-largest economy is forecasted to grow at 9 percent. Due to its export-oriented economy, China is affected by an economic slowdown in its key trading partners--Europe and to some extent the United States. The slowdown in the Chinese growth is also partly policy driven, as the People's Bank of China is expected to further tighten its monetary policy--particularly its foreign exchange rate policy to keep inflation under wrap. Other challenges for China include policies to disincentivize domestic savings (such as creating a welfare state) and further rely on domestic demand for growth. Finally, if the tightening regime continues it will help keep the dollar's value low and rebalance trade between the U.S. and China.

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Canada

Canada is likely to outperform most of its peers with a growth forecast of about 2 percent in 2012. The fundamental drivers for growth--sound fiscal and economic management--are in place in the Canadian economy. Additionally, the abundance of natural resources that the world economy strongly demands has put Canada in a healthy trading position. Canada experiences a significant positive "wealth shock" when commodity prices rise...