2013 Economic Outlook: Hope Mixed With Anxiety

It's not for nothing that 2013 is an odd-numbered year. Most economic and business forecasts for the year are rooted in a combination of hope and fear: hope that actions being taken by governments and enterprises will help revive stumbling economies and businesses, and fear of the many unknowns that could trip up even the most carefully calibrated plans.

What's clear is that no matter whom you speak with, 2013 will be a pivotal year for the global economy and the electronics manufacturing sector. Of course, it's easy to argue that the same could have been and probably was said about 2012 and previous years, but there are significant reasons for believing 2013 will be a defining year politically for major regions of the globe -- continuing many of the changes that occurred in 2012. Certainly, the adjustments and readjustments that began years ago in portions of the economy are bound to accelerate this year.

First, Europe's leaders appear determined to keep a tight lid on the fiscal and debt cauldron that's still threatening to boil over, endangering the region's fragile economic unity. This means the continuation and intensification in 2013 of a wide range of actions aimed at curbing debt problems and sparking economic growth -- policies that will have direct implications for member states as well as the European Union's key trading partners. The mess in Europe isn't over by a long shot, and discussions as well as actions to resolve this will continue through 2013, according to economists and government officials. Late in November, reports indicated the severity of the problem facing the region and pointed to signs showing that the continent's economy had slid into a "double-dip recession" in the third quarter.

Companies throughout Europe and in other geographic locations, as well as national governments in Asia-Pacific and North America, will be paying close attention to events unfolding in the EU area and will most likely step up actions in their regions to limit any negative impacts and squeeze as much benefit as possible from any positive initiatives. In its latest report issued in October, the International Monetary Fund projects that the eurozone economy would shrink by 0.4 percent in 2012, compared with the 1.4 percent expansion in 2011.

The region's economy will barely grow in 2013, however, improving just 0.2 percent -- depending on how successful the area's governments were in dealing with their challenges. "As a baseline forecast, we expect the global economy to continue to expand modestly," said Standard & Poor's Chief Global Economist Paul Sheard in a press statement. "We expect that the U.S. will avoid the fiscal cliff and eke out about 2 percent growth, policymakers will keep a lid on the eurozone crisis, and the recession there will remain relatively shallow, China will experience a ‘soft landing' in its growth deceleration, and Japan will grow modestly while remaining stuck in deflation."

That's the bad news for 2013. The year isn't likely to turn out all negative, according to the IMF. In fact, the global economy is seen improving slightly in 2013 from the prior year. Total growth for 2013 is forecast at 3.6 percent, up a bit from 3.3 percent in 2012. While problems are seen persisting in the eurozone as well as in North America, the rest of the world is forecast to pick up the slack. The IMF said it expects economic growth in emerging market and developing economies to average 5.6 percent in 2013, up from 5.3 percent in 2012 on improving conditions in China (8.2 percent vs. 7.8 percent), India (6 percent vs. 4.9 percent), and Brazil (4 percent vs. 1.5 percent).

"The recovery is forecast to limp along in the major advanced economies, with growth remaining at a fairly healthy level in many emerging market and developing economies. Leading indicators do not point to a significant acceleration of activity," the IMF said. Amid sharply differing developments across advanced and emerging market and developing economies, the world unemployment rate is estimated to remain flat during 2012–2013, near 6.25 percent. Unemployment rates have on average declined below pre-crisis levels in emerging market and developing economies, but they remain elevated in advanced economies.

In the United States, efforts to spark growth and employment will be ramped up over the next six months, even as politicians -- conscious of the budding debt problem at home -- try to control spending in other segments of the country's economy. Such measures will affect healthcare spending, subsidies and tax breaks for industries, government recruitment, local government infrastructure expenses, social support outlays, and regulatory activities aimed at increasing tax receipts.

Economists believe the US will perform better in 2013. While many industry segments will see uneven growth, the economy itself is expected to benefit from efforts to spark growth both in Congress and by federal and state governments. For this to happen, companies will have to resume hiring and may start doing this later in 2013, once the country has implemented policies designed to fire up the economy, said Mark Zandi, chief economist at Moody's Analytics.

"The economy is expected to remain on its current slow growth path until the next president and Congress negotiate around the fiscal cliff, increase the Treasury debt ceiling and lay out a credible path to fiscal sustainability," Zandi said in a research report. By 2014, growth will be in full swing as the construction cycle definitively turns up. Real GDP growth is expected to approach a 4 percent annual pace, with job growth above 250,000 per month and unemployment steadily declining. The economy should return to full employment -- defined as a 5.8 percent unemployment rate -- by early 2016."