A global growth recession, lower inflation for now and monetary ease are expected for 2012, according to BNY Mellon Chief Economist Richard B. Hoey in his February 2012 Economic Update.  The three main risk concerns are the European financial stresses, the Chinese property market and the Middle East, primarily due to oil supply vulnerabilities, as stated in the report.

"Monetary ease in many countries is a key reason why we expect the global economy to avoid a full-scale recession in 2012," Hoey says.

"Unlike many other countries, the U.S. economy is likely to grow faster in 2012 than in 2011," Hoey continued.  "We believe that the Federal Reserve is trying to achieve a gradual deleveraging of the household sector by a 'nominal growth fix.'  Sustaining a 'nominal growth fix' over a period of years could help ameliorate the debt hangover in the household sector over time." (Nominal variables are in current dollars and reflect the sum of both real growth and inflation.) 

"The negative economic consequences of persistently high U.S. budget deficits are being postponed to future years," Hoey concluded.  "One potential negative consequence would be if excessive deficits created a dramatic rise in real interest rates (interest rates relative to inflation).  That is certainly not happening today.  Real yields on Treasury securities are actually negative for many maturities.  High budget deficits should persist for many years, but for now they are easy to finance in the current low interest rate environment."