Eurozone GDP growth will fall from 1.7% to 1.0% due to a combination of fiscal austerity, a lingering debt crisis and a slowdown in external demand, ING Investment Management said.

Head of strategy at ING IM Valentijn van Nieuwenhuijzen explained: “As a whole, the global economy is currently slowing down again. This is most evident in those developed market economies characterised by household and financial sector deleveraging. Nevertheless, core Europe as well as emerging markets are affected as well through a slowing of external demand. There are two broad reasons behind this. First, the oil and Japan disaster shocks have taken a greater toll on developed markets’ domestic demand growth than previously anticipated.

“Second, there are increasing concerns about the competency of policymakers on both sides of the Atlantic to deal with the challenges facing them. In the US this has raised the prospect of more near-term fiscal tightening without a solution for the long-term fiscal problems, while in Europe it implies a heightened degree of systemic risk.”

Risk aversion has risen considerably lately, potentially resulting in a self-fulfilling negative feedback loop between growth on the one hand and financial conditions and confidence on the other.

Elsewhere, emerging markets are predicted to continue to outpace their developed counterparts with emerging market GDP growth expected at 6.1% in 2012, compared to a world average of 3.6% and a developed market average of 1.6%. The asset manager expects Chinese growth to drop from 9.2% in 2011 to 8.5% in 2012.

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