APLA '12: Threats to growth will persist in '13 - Brazil economist

12 November 2012 01:59  [Source: ICIS news]

RIO DE JANEIRO (ICIS)--Threats to economic growth will continue to loom in the new year, a Brazilian economist said on Sunday.

Economic growth is crucial for petrochemicals because demand is strongly correlated with GDP.

In all, the world economy will unlikely return to its growth rates before the downturn, although major hurdles will unlikely appear, said Eduardo Giannetti da Fonseca, a Brazilian economist.

He made his comments during a presentation at the Latin American Petrochemical Association (APLA) annual meeting.

Threats, however, still remain, he said.

The banking and fiscal crisis in southern Europe could spread to the northern part of the region, threatening a repeat of the US crisis of 2008, Fonseca said.

The situation has recently improved, as the role of the European Central Bank could be expanded, he said. "I feel more comfortable regarding Europe."

For the US, the nation could enter a recession if it does not avoid the so-called fiscal cliff that will kick in on 1 January.

The fiscal cliff is the combination of several expiring income tax cuts from the previous presidency of George Bush and other effective tax increases, plus a mandated sharp reduction in federal military and domestic spending.

All together, the expiring tax cuts and spending cutbacks could take as much as $800bn (€632bn) out of the US economy.

To avoid the fiscal cliff the US Congress and President Barack Obama must come to terms.

Failure could result in such dire consequences, Fonseca said he doubts the two sides will not come to terms.

"I think common sense will prevail," he said.

In China, uncertainty surrounds the intensity and severity of the slowdown in the nation's economy, Fonseca said.

Given how much the legitimacy of the Chinese state depends on economic performance, Fonseca expects that the country will successfully adopt the proper monetary and fiscal policy to maintain economic growth rates of 7.5-8%, he said.

In the Middle East, instability could create conflict, disrupting oil supplies, Fonseca said.

The APLA conference ends on Tuesday.

($1 = €0.79)

By: Al Greenwood
+1 713 525 2645

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