This is a pretty good summary from Ian Bremmer at Eurasia Group regarding some of the risks in 2013. If you read annual outlook reports you’ll inevitably hear about these three. I largely agree with his conclusions here. These three risks are probably overrated heading into 2013:
This is probably the single most overrated risk of 2012. It’s driven in large part by European observers (especially in Britain) who don’t much like the eurozone.
The political will to maintain the eurozone remains strong among all the major political parties in the core eurozone states, almost across the board in the European periphery and, just as importantly, among eurocrats in the ever-growing European bureaucracy. To be sure, this could change over time. We’ll see what happens if Europe’s leaders totally fail to restructure the institutional machinery of the eurozone. But that’s not a story for this year.
Further, there is no effective political mechanism for a eurozone breakup. It’s conceivable that an individual country might voluntarily leave the eurozone without such a mechanism, but for a real dissolution scenario to have any plausibility, a formal process would have to be created. If you think expanding funding for the European financial stability fund is hard, try organizing a breakup mechanism.
China’s hard landing
A substantial number of market observers and some China analysts believe that some combination of overheated growth and the proliferation of bad loans in the Chinese banking system will lead to a major financial blow-up or a sharp contraction in 2012 that takes Chinese economic growth down to 5% or even lower for the year. Don’t believe them.
There are signs of overheated growth in China—in urban real estate in Beijing and along the coast, especially. And infrastructure has been overbuilt compared to growth in consumption. But there’s no chance that the government will fail to pull out every stop to prevent a meltdown—or even a serious bump—especially in the middle of a major political transition. The Chinese banking and financial system is a mess, but it’s also a fundamentally closed system. In a closed system, preventing such a crisis becomes a matter of fiscal capacity and political will. There will be no shortage of either in 2012. In short, China has more of what it needs to kick the can down the road than any other country out there, and in a challenging 2012 environment, look for Beijing to use it.
Just isn’t happening. And if it does, well, sorry.