The economic scene, as usual, had interesting tales to narrate this year, which put policymakers in the centre of several storms as economists continued to offer advice that, when combined, covered all possibilities. Here is how the billboard would read.
At 10 is the euro crisis, which is now into its third year. The beauty of the crisis is that while questions are raised every year on the disintegration of the euro and the eurozone, it has not quite happened. The ECB has plans to revive the economies and actually thinks that they will follow austerity as it buys back securities. Germany opposed saving Greece and Spain, but finally relented. After all, if any country falls, it will bring down the others. They are all in it together.
At 9 is the US economy. Last year, it was a possible default that made rating agencies trigger-happy. It was actually seriously debated that the US would default on its debt. This year, it is the fiscal cliff that became an issue during the elections when Obama batted for tax increases and Romney for expenditure cuts. But, with Obama coming back, it is the devil or the deep sea. It has to be resolved with either or of the two options. 2013 will witness which way the die is cast.
At 8 are the Fed and the ECB, which sort of competed to induce liquidity into their systems. QE4 looked like a cynical joke at the beginning of the year, but is now a reality. We have had QE (various versions) operation twist, LTRO, government-bond-purchase programme and so on. The Fed will keep buying all bonds now to ensure that banks have money to lend. The ECB also will buy back bonds provided the countries promise to be good. So it is liquidity everywhere. The question is whether it will help?
At 7 the emerging countries come into focus, talking of BRICS getting together to create a bank. Can this happen? Each country is of a different variety with differing forms of governance iced with a large degree of mistrust. Will this ever work given that these countries are spread so far apart—any economic union of sort should qualify for the proximity factor which is missing here?
At 6 it is our own GDP growth forecast. Starting with some degree of pomposity at the beginning, and a strong sense of denial during the year, we have now