Yes. The commitment of member governments and, above all, of the European Central Bank to maintain the eurozone looks strong enough to keep it together for another year, at least. The governments of vulnerable countries will continue their austerity drives. The impact will be cushioned by International Monetary Fund programmes in the cases of Greece, Ireland and Portugal and by increasing support from the ECB for all of them, via the battered banks rather than direct intervention in the public debt markets. We can also expect further cuts in ECB interest rates and a weaker euro, both of which should ease the pain. But the hairshirt approach is not going to work forever. At some point, the eurozone will have to return to strong growth, with relatively high inflation in the core nations, to accommodate the necessary adjustments in competitiveness of vulnerable countries. Austerity forever will almost certainly fail. But what is likely to be the grim austerity of 2012 should still work. Martin Wolf
Yes. But that does not mean Britain will default. Instead of the expected recovery, growth has flatlined. That has forced the government to postpone meeting its public debt and deficit targets. Continued stagnation or a second recession could quickly worsen the debt dynamics further and trigger self-fulfilling fears among bond investors. If this happens, the government will be in a bind. It has tied itself so tightly to the mast of austerity that it cannot loosen its policies without scaring the markets. The Bank of England may expand its quantitative easing programme enough to keep gilt yields from soaring. But its help will not look pretty: sterling will fall and inflation will increase. While this will not upend UK public finances, it could sink the government’s re-election prospects. Martin Sandbu
No. The global economy is slowing and the threat of another worldwide recession is rising. European policymakers have demonstrated in 2011 that promises to do whatever it takes to save the euro were merely empty rhetoric. So the euro remains on a cliff edge and a mistake could send it tumbling over. That risk alone is enough to suggest 2012 will be a bad year for the global economy, with the possibility of a catastrophic collapse of the world’s largest economic area. Only if European politicians surprise us all with a comprehensive plan will the natural forces of recovery work to improve the economic outlook by this time next year. Chris Giles
Will the US begin to close the gap with China in manufacturing?
Yes. The US last year gave up its century-long title as the world’s biggest manufacturing country by output to China, whose climb up the global factory league table has been meteoric. But progress is slowing as China’s rising wage and energy costs make production options – at least for export – less favourable. In the US, local production is growing in response to customers’ desire for quick design changes and rapid delivery of orders. Many US manufacturers have also become more competitive by substituting brain power and capital for labour.
There is little evidence that China has come close to catching up with the US in the most technically demanding end of manufacturing. By the end of 2012, even if the US does not regain the top slot, it will have narrowed the gap with China in its share of world manufacturing production. Peter Marsh
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