The only certainty is continued uncertainty when it comes to the outlook for the global economy in 2012. For business aviation at least, it used to be assumed that you had to look only at the state of the world’s major stock markets to assess the market’s prospects. But share price fluctuations tell only a small part of the story these days.
The biggest forces shaping aviation’s destiny this year will be how the national debt crises in Europe and the U.S. are resolved (or not) and whether a full-blown global financial crisis can be avoided. This factor alone has the potential to destabilize the main Western economies, with a domino effect that could also undermine the situation in the key emerging economies in the East.
Even if there is sufficient political resolve to fix the sovereign debt meltdown, there is mounting concern about whether credit markets could seize up once again and what could be the impact of prolonged anemic growth. On top of this, air transport and aerospace will continue to confront the challenge of rising commodity prices, not least fuel.
The best that can be hoped for from the European and U.S. economies is that they do not slump back into full-blown recession. The latest European Commission economic forecast sees overall growth in gross domestic product (GDP) among European states being pegged back to just 0.5 percent in 2012. Some countries might dip below zero, especially those that are now having to implement extreme austerity.
In the event that one or more countries are forced to drop out of the euro currency zone, this would leave companies scrambling to rebalance their costs and income in whatever currencies might replace the euro–especially since the fall-back currency will likely be markedly devalued. At the very least, it’s seems that the industry may be wise to anticipate a period of currency exchange instability, which could bring both positives and negatives in a business that still tends to fall back on the U.S. dollar as its point of reference for transactions.
The U.S. economy appears to be achieving some faltering recovery, with GDP growth anticipated at between 1.5 and 2.7 percent in 2012. But continued anxiety over budget deficit issues in an election year will do little to soothe the nerves of the business community.
But here’s the real kicker, and arguably the greatest unknown. Until just a few months ago, it seemed a reasonable assumption that growth curves in emerging markets would continue to compensate for weakness elsewhere. Certainly, that expectation has been borne out by burgeoning airliner sales in Asia and the Middle East, as well as continued business aviation growth.
Yet now we see growth slowing even in the so-called BRIC countries. Despite the recent major oil field discovery, Brazil’s economy is slowing down. Russia is set for 3.8-percent GDP growth, compared with the 4 percent it achieved in 2010. India is coming to terms with its until recently stellar GDP growth dipping below 7 percent for the first time in at least a couple of years, and, at the same time, its rupee currency is dipping in value, making aircraft purchases more costly. And then there’s China, where 2012 is projected to see 8.6-percent GDP growth–impressive at face value, but down on the 10.3 percent rate achieved in 2010. It all goes to show that while growth sustains growth, even these supposedly wonder-economies will not necessarily thrive if those around them continue to stall.
Finally, let’s just hope that worst fears about possible exposure on the part of international banks to possible sovereign debt defaults in countries like Greece prove to be groundless. If not, this could result in another rapid and severe contraction in available capital and this could undermine aircraft leasing and finance.