Global economy faces a difficult 2012,

Tim Drayson said:

"The euro area problems don't just affect Europe. Europe is a major trading area for the US, China and the UK. European banks have been major providers of credit to the global economy.

"These problems will be felt globally. Even in the unlikely event of Europe's leaders finding an immediate and comprehensive solution to the debt crisis, a lot of damage has already been done."

Italy is expected to fare worst in the euro area, although Tim also expects France to perform poorly next year.

Tim explained:

"We expect to see a sharp contraction in investment in both countries as the corporate sector will remain cautious. Add austerity measures and low consumer confidence, and you have all the ingredients for a recession.

"Looking at the global economy, there are other potential pitfalls to consider. For instance, in the US, we expect only modest growth in 2012, even if expiring tax breaks are renewed. Given political pressures in an election year, renewal cannot be guaranteed."

Turning to the UK, Tim believes that the Office for Budget Responsibility remains too optimistic despite its recent GDP downgrades for 2012.

"Given planned austerity measures, we feel that the OBR's forecasts would be achievable only if the private sector grows at near record levels. We see no basis for that," he said.

Tim expects a stormy year for investors, saying:

"Weaker economic growth means earnings will be under pressure in 2012 and this will impact equity markets. We would favour the US over Europe.

"Although ‘safe' government bonds such as the US, UK and Germany look expensive, weak growth, risk aversion and further quantitative easing should keep yields low.

"Credit markets will be volatile but are looking more attractive, particularly for those with more long-term investment horizons."