- Scenario 1, “Risk perpetuation”: A “muddle through” situation in which political uncertainty in the US and Europe weighs on the growth outlook, despite some encouraging economic developments in the US and China. In this scenario, European markets remain volatile, Japanese markets perform strongly based on more accommodative monetary policy and China continues to grow at a relatively strong pace.
- Scenario 2, “Risk habituation”: The most “risk-on” scenario, in which the US Congress agrees to a fiscal compromise with a minimal effect on growth, triggering gains in GDP due to a pent-up demand for spending by both corporations and consumers. In this scenario, problems in Europe diminish, and the eurozone returns to GDP growth in 2013. The Japanese economy improves due to aggressive monetary policy and rising demand, while China’s growth continues to accelerate.
- Scenario 3, “Risk annihilation”: The most bearish scenario, in which political gridlock in the US and instability in Europe lead to significant deceleration in the US and the eurozone. In this scenario, the US barely escapes recession, and European growth remains negative. In Japan, aggressive monetary policy is not enough to offset weakening demand, and the Chinese economy decelerates significantly.
UBS Global Asset Management Forum Highlights Continental Divide
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