Could the United States surprise while the euro zone suffers? And will the price of oil and gas rocket while gold loses its shine? Leading economists give their forecasts for the New Year.
Top economic predictions for 2013
Standing on the edge of a cliff, fiscal or otherwise, is never a great way to celebrate the arrival of a new year. But if nothing else, it does tend to focus the mind on how to safely get off it. Here, the top economists, forecasters and number crunchers from some of the biggest names in global investment make their key predictions for how the markets will shape up in 2013.
Gold or Palladium?
The shiny happy people at Julius Baer see gold and palladium as the only two commodities worth their weight this year as paper assets rapidly lose favour among global investors. Automotive demand in emerging economies is expected to support palladium, used to make catalytic converters.
At the same time gold may benefit in the short term from a rise in money supply.
Capital Economics expects gold to rise to about US$2,000 (Dh7,346) per ounce in 2013 from about $1,700 now, driven by the re-escalation of the crisis in the euro zone. Continued money printing by central banks can't do any harm either. What better hedge against inflation than the historical coinage of choice? That said, momentum may be starting to move against the yellow metal, says Emirates NBD, even if it does remain "under-owned".
Oil or Gas?
The oil price has been pulled in different directions for much of this year with Arab Spring concerns strengthening the cost of crude and worries about the global economy weakening it. Next year, subdued demand and an improving outlook for Middle East supply could see the price of Brent crude fall to about $85 per barrel - a drop of about $25 from current levels, say forecasters at Capital Economics. That would concern some Arabian Gulf economies more than others with the spectrum of break-even oil prices running from $55 in Qatar to as much as $110 in Bahrain.
While demand from China and other emerging economies is seen as a factor that could cushion the downwards pressures on the oil price they are unlikely to provide much of a boost. Conversely, the recent rebound in US gas is seen as having more traction with the surge in supply arising from the shale gas boom levelling off.
Equities or Bonds?
The closure of brokerages throughout the Gulf during 2012 may have signalled the final nail in the coffin for equities investing in this part of the world.
But many commentators expect to see a resurrection in pockets during 2013.
Gayle Schumacher, the head of investment office at Coutts, predicts an equities comeback this year as investors realise that bonds may no longer be the safe haven asset class they once represented - especially in an inflationary environment.
But investor attention is more likely to be focused on strong balance sheets in more developed markets as Arab equities look forward to what could be another tough year. Bank of America Merrill Lynch expects global equities to be the best-performing asset class of 2013 with US, Asian and European equity markets posting gains of between 10 per cent and 16 per cent. The outlook for Middle East equity markets is not so attractive.
Capital Economics expects most of the region's stock markets to fall by about 10 per cent over the year. Gulf corporate and government debt issuers have enjoyed a purple patch of seemingly insatiable demand from global investors this year. The trend has narrowed the spreads on Gulf bonds to record lows and limits the scope for further appreciation. Blackrock notes that the global hunt for yields in an era of low interest rates has resulted in a narrowing of valuations between top quality and secondary income assets. Its advice? Take out the garbage.
Dubai, Riyadh or Doha?
Or could it even be Dubai that emerges as the region's growth juggernaut?
While stimulus is the main driver in the Saudi and Qatari capitals, Dubai's rebound owes its thanks in large part to its runaway aviation economy that is also lifting retail, hospitality and real estate in its slipstream. Unfortunately, for investors, not very much of that (with the exception of property) is captured by the emirate's stock market. Capital Economics expects Qatar to record the strongest growth in the region at 7 per cent - even if that is just half the rate of growth it achieved in 2011. While Saudi Arabia is expected to trail its smaller neighbour with GDP of 5.8 per cent, it is likely to be of more interest to international investors expecting greater access to the markets in the kingdom.
That appetite will be whetted further by this week's record budget which sets out a 20 per cent rise in spending this year to $219 billion. Even if the oil price falls to below the Saudi break even price of about $85, the kingdom's low external debt and accumulates assets of more than $600bn provide a strong buffer against external shocks to the system in the short term.
US or euro-zone recovery?
The fiscal cliff may have dominated the financial pages in recent weeks but many economists see more problems emerging in the euro zone than in the United States this year. The intervention of the European Central Bank to curb bond yields in peripheral economies is seen by many as a short-term fix that does not address longer term challenges such as boosting competitiveness and reducing the overall debt burden.
In the absence of such fixes, Capital Economics expects the euro zone to slide deeper into recession. Conversely, if a political consensus prevents the US from falling over the edge of the fiscal cliff, Julius Baer predicts it will avoid sinking into recession.
Jim O'Neill, the chairman of Goldman Sachs Asset Management, also believes the US economy could surprise on the upside. That could strengthen the dollar and by extension, the Gulf currencies which are pegged to it. Blackrock Investment Institute notes that policy - fiscal, monetary and regulatory - drove markets on both sides of the Atlantic in 2012 and is likely to continue to do so this year.