According to the USDA's Outlook for U.S. Agricultural Trade report, world growth in 2012 is expected to be down from 2011 with world inflation and the dollar down modestly from 2011. Recent debt-related turmoil in European financial markets, as well as weak employment and gross domestic product (GDP) growth have brought a European recession which is likely to continue into 2012. Most Asian economies will show strong, but slowing, growth compared to 2011.

Inflation in the United States and the Euro-zone is expected to be low in 2012 compared with 2011, due to low U.S. factory utilization rates, despite a modestly improving labor market, and higher European unemployment. The modest pickup in U.S. growth is not large enough to fully offset the lack of growth in the Euro-zone. In the developing world, overall inflation is expected to fall, due to credit tightening and despite tighter labor markets.

The net result is world consumer price index (CPI) inflation slowing to 2.6 percent in 2012, down from the 4.1 percent seen in 2011. The two main risks to world growth are a significant spillover of the Euro-zone problem to other developed country financial institutions and markets, or a significant disruption to oil supplies. Overall trade growth is expected to be only 4 percent in 2012, down from over 6 percent in 2011.

Despite slower world growth, the outlook for agricultural trade is promising. Development of natural gas and other energy sources, as well as slower world growth, are expected to mitigate the impact of rising crude oil prices despite supply issues. A weak dollar will make U.S. goods more competitive and low interest rates are expected to provide continued inexpensive credit for U.S. exports in 2012.

Ag Trade Outlook: View for 2012 world growth down modestly