Seeking Calmer Waters and Dodging Icebergs
Special Annual Outlook Edition

CHICAGO, December 15, 2011 – In the December issue of Themes on the Economy^®, Chief Economist Diane Swonk writes for her 2012 outlook that she expects economic recovery to "reaccelerate after nearly stalling in 2011." But Swonk cautions that, "The risks remain heavily weighted towards Europe and the spillover effects that any missteps there could have on global growth." For more details, Read this month's issue.

• Inflationary pressures are forecast to slow in 2012 because "Vehicle prices are falling… Airfares are plummeting… Housing prices continue to depreciate (and) Consumers continue to expect discounts to motivate them to buy, even at luxury retailers," our chief economist says in her December newsletter.
• Swonk predicts that, "Exports are expected to outpace imports so the trade deficit is expected to continue to narrow." This, despite slower growth abroad and "uncertainties in Japan and Europe (which) suggest that the dollar should continue to appreciate modestly over the next year."
• "Business investment is expected to remain strong and continue to grow faster than the overall economy," Swonk noted, though she says consumer spending will lag that trend and recover more slowly.
• The Federal Reserve is expected to provide further accommodation via its communications, as it more explicitly broadcasts its plans for interest rates. "The lessons of the Great Depression and Japan suggest that the central bank must convince the public and financial markets that it is committed to reinflating the economy when inflation is too low and unemployment too high."
• "Political uncertainty both at home and abroad still has the potential to disrupt financial markets," she writes. If Congress and our European trading partners were to address their respective budget issues, businesses and consumers could more easily make plans for the future, even a more constrained future. Despite the size of the American economy and the determination of policy makers at the Fed, Diane Swonk warns that "the U.S. is not an unsinkable vessel and can quickly lose steam" in navigating to avoid icebergs cut loose in the global economy.

The December issue of Themes on the Economy® as well as archived issues can be found at mesirowfinancial.com.