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December 29, 2011

Leading Economists Offer Their Forecasts for 2012

by Mil Arcega

After a tough year in which the global economy faced one headwind after another, U.S. economists are weighing in on what is in store for 2012. When it comes to the U.S. budget, unemployment and the crisis in Europe - many believe 2012 will bring more of the same.

From the U.S. budget showdown to fears of a "double-dip" recession - 2011 was a year when the economy muddled from one crisis to the next.

Economist Mark Vitner at Wells Fargo Bank said that in many ways, 2012 will probably look a lot like 2011.

"The first half of the year, growth is likely to come in below expectations. We're likely to see fears of recession crop up, particularly if things in Europe get a little dicey [troubled], but by mid-year or certainly by late summer, the data should turn a little bit more positive," said Vitner.

By then, the campaign to choose the next U.S. president will be in full swing. Jobs are expected to be on people's minds. And with an economy projected to grow too slowly to reduce the unemployment rate of 8.6 percent, economist Beth Ann Bovino at Standard and Poor's said jobs are likely to remain scarce.

"I'm expecting the unemployment rate to go up a little bit more, stay at 9 percent through the year, and then start to come down as the recovery gets a little bit more momentum," said Bovino.

Economist George Perry at the Brookings Institution takes a more optimistic view.  

"Unless the Europe situation blows up, or if I'm wrong on the China situation and China doesn't speed up, I think the U.S. unemployment rate will be lower at the end of the year than it is now," Perry.

Nigel Gault at IHS Global Insight said the bigger threat comes from economic stagnation in the 17 countries that use the euro.

"The eurozone is the single biggest threat, not just from a eurozone recession. It's from the risk of recession combined with a eurozone financial crisis that develops into a major global financial crisis. In the worst case, it could be as bad as we saw in 2008, 2009," said Gault.

Most economists say all bets are off if struggling nations such as Greece decide to abandon the euro. Adding to worries is the intense focus on sovereign debt, both in the U.S. and abroad. While necessary, many economists say in the short term, spending cuts and austerity measures can only weaken an already sluggish global recovery.