Euro crisis puts the brakes on global economy

“The growth of the global economy will slow down in 2012 as uncertainties remain very high,” said the reinsurer. “However, inflation is expected to slow down due to weaker global growth and only moderately increasing commodity prices.”

“Developments in Europe will be a significant obstacle for global growth,” read the statement. “A further escalation of the euro crisis would place an additional burden on the economy. In conjunction with the continuing high level of risk aversion in the capital markets, this could lead to a severe recession that would also have global consequences.”

Another risk that Munich Re referred to is the high level of uncertainty surrounding US fiscal policy.

China’s high real estate prices and the potential for an increase in loan defaults (perhaps leading to its own sub-prime crisis) could also lead to a sharp decline in growth, said Munich Re.

A further escalation of the euro crisis would place an additional burden on the economy.

Commodity price shocks are another risk for growth and inflation, which could be caused by political developments.

There is light at the end of the tunnel, said Munich Re. “If in the course of the euro crisis politicians succeed in quickly restoring confidence in the capital markets, the economy could produce positive surprises in 2012.”