London 15 September 2011

Latest EIU Global Forecast: The Economist Intelligence Unit has cut its forecast for euro zone growth in 2012 to 0.8% (from 1% last month) in the light of recent poor data and the escalation of the debt crisis. We maintain our growth forecast for the US in 2012 at 2% on the assumption that a good part of Mr Obama's September 8th stimulus plan is passed. After last month's downward revisions, our forecasts for emerging-market growth remain broadly unchanged. We assess the risk of a recession at more than one in three.

This results from:

- Concerns about the euro zone which remain to the fore. Following the initial rally caused by European Central Bank (ECB) purchases, Italian and Spanish bond prices have fallen again, pushing yields on 10-year bonds back up towards 5.5%. Greece has failed to meet targets under its EU-IMF loan programme, jeopardising a €8bn disbursement due in September and creating a serious risk of an imminent disorderly default and possibly even an exit from the euro zone. Finland and the Netherlands are both demanding collateral against loans to Greece. National parliaments are due to vote on changes to the European Financial Stability Facility (EFSF) in September.

-  Risky asset markets remain volatile owing to concerns about the euro zone and the risk of recession. Germany's equity market, which is heavily geared to the global industrial cycle, has fallen by more than one-quarter since the start of July. Declines in asset prices are undermining consumer and business confidence.

-  Risk aversion is creating a bid for the US dollar. Concerns about growth are resulting in surprise policy decisions. The Swiss National Bank has tried to stem the appreciation of the Swiss franc by setting a ceiling against the euro. Worries about the global outlook led the Brazilian central bank to make an unexpected 50-basis-point cut in its policy rate. More emerging-market central banks may follow Brazil's lead or, at least, postpone rate rises until the outlook is clearer.

As for commodity prices, EIU believe they will continue to ease back in 2012, owing to weak consumption growth and - depending on the commodity - some improvement on the supply front. However, low global interest rates and a loss of confidence in sovereign creditworthiness, which is encouraging investors to seek return in real assets, will offer support to prices. With global demand set to record a greater degree of stability in 2014-16, commodity prices are expected to nudge higher.

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