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NEW YORK--([ BUSINESS WIRE ])--The global economy in 2012 will likely remain in its aGreat Idle,a with slow, positive growth and an economic crisis avoided, according to Russ Koesterich, Global Chief Investment Strategist for BlackRockas (NYSE: BLK) iShares business. However, the odds of another global recession a" the result of policy mistakes in Europe as well as in the U.S. a" have risen in recent months and Europe could experience at least a mild recession.

"In the absence of an unlikely pickup in the labor market and real incomes, temporary sustenance is probably the best we can hope for in 2012."

In his aiShares Market Perspectives 2012 Outlook,a Mr. Koesterich assigns a 55% to 60% probability to a aGreat Idlea scenario.

aThe good news a" which has been largely ignored recentlya" is that in the absence of a European meltdown, most of the global economy has been improving,a he said. aThe most recent measures indicate that growth in the U.S., other developed countries and emerging markets is stabilizing, albeit at a below trend level.a

At the same time, Mr. Koesterich puts the chances of a global recession next year at 35% to 40%, compared with just 20% last year. aWhile U.S. economic data has stabilized, political paralysis in Europe continues to be a major risk factor, threatening not just Europe but also the broader global economy,a he said.

He sees just a 5% chance that the world will return to stronger growth next year. aA quick acceleration in global growth appears unlikely because, among other reasons, Europe is almost certain to undergo at least a mild recession,a said Mr. Koesterich.

The Great Idle:Recovery Sustainable But Still at Risk

With recent improvements in global economic data, the ongoing recoverya" though still quite fragilea" appears sustainable, although Europe remains a notable risk, Mr. Koesterich said. aEven if Europe can avoid a sovereign debt collapse, the deleveraging by the European banking system is likely to produce at least a mild recession in 2012,a he said.

In other parts of the world, growth should be better, but still below trend. The U.S. economy is likely to grow approximately 1.75% to 2.50%, an improvement over 2011 and in line with average growth rates from the last decade. Smaller developed markets, such as Canada, Australia, Singapore, Switzerland, and Hong Kong (the CASSH markets), are expected to grow significantly faster, along with most emerging markets.

Japan is likely to be the fastest growing of the major economies, given reconstruction from last yearas earthquake and the Japanese banking systemas relative stability.

Mr. Koesterich said: aIf the European crisis does not worsen, the broader global economy can avoid another contraction. Absent a worsening European crisis, we hold a positive longer-term view on equities, particularly relative to bonds, and we believe that investors should take advantage of historically low equity valuations and increase allocations to smaller, developed countries and emerging markets.a

Question Marks:European Sovereign Debt, U.S. Consumer Spending

While the recovery should continue in the absence of another crisis, the odds of an exogenous shock have increased on two fronts, both related to policy, Mr. Koesterich said.

aThe lack of a long-term plan to stem European sovereign debt contagion raises the odds of a banking crisis, severe recession and even the dissolution of the Euro,a he said. aAll this could undermine global confidence and trade, and arguably put significant strains on the global banking system.a

A decrease in U.S. consumer spending is another threat to the global economy, Mr. Koesterich said. Since the start of 2008, overall U.S. disposable income has risen by approximately $775 billion, supported by reduced consumer savings and government stimulus. Approximately $550 billion, or around 70%, of the increase in U.S. disposable income has come from an increase in government transfer payments.

aIf there is a reversal in the savings rate or the stimulus provided in 2011 is not extended into 2012, consumption is likely to fall,a Mr. Koesterich said. aIn the absence of an unlikely pickup in the labor market and real incomes, temporary sustenance is probably the best we can hope for in 2012.a

Opportunity for Investors: A Barbell Approach

The start of a new year is always a good time to review your investment goals and asset allocation with your financial professional, and to make portfolio changes where necessary. Reflecting the potential outcomes for 2012, Mr. Koesterich suggests a abarbell investment approacha comprising a portfolio roughly weighted to the two main scenarios of the aGreat Idle,a representing 60% of an investoras portfolio, and the aGlobal Double Dipa, representing 40%. The weightings could be adjusted during the course of 2012 according to whether signs of stabilization or downturn emerge.

As a baseline, Mr. Koesterich favors maintaining a core position in global, dividend-paying mega cap stocks to address both scenarios. Investors should consider smaller developed markets such as Canada, Australia, Switzerland, Singapore, Hong Kong, and select merging markets such as Latin America.

In fixed income, Mr. Koesterich believes corporate bonds, particularly in the investment grade sector, are undervalued. The spread between yields of Treasuries and U.S. corporate bonds looks unusual based on historical averages, recent trends in credit quality and in the context of the current economic climate, notes Mr. Koesterich.

For the aglobal economic recessiona portfolio, Mr. Koesterich suggests exposure to U.S. Treasuries, even given the risks associated with U.S. debt. He also favors maintaining a relatively small strategic weight to gold, despite its volatility.

Investment strategies for 2012

Here is a summary of Mr. Koesterichas three possible scenarios and potential investment strategies for 2012:

About BlackRock

BlackRock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. At September 30, 2011, BlackRockas AUM was $3.345 trillion. BlackRock offers products that span the risk spectrum to meet clientsa needs, including active, enhanced and index strategies across markets and asset classes. Products are offered in a variety of structures including separate accounts, mutual funds, iShares (exchange-traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions. Headquartered in New York City, as of September 30, 2011, the firm has approximately 10,200 employees in 27 countries and a major presence in key global markets, including North and South America, Europe, Asia, Australia, and the Middle East and Africa. For additional information, please visit the Company's website at [ www.blackrock.com ].

About iShares

iShares is the global product leader in exchange traded funds with over 460 funds globally across equities, fixed income and commodities, which trade on 19 exchanges worldwide. The iShares Funds are bought and sold like common stocks on securities exchanges. The iShares Funds are attractive to many individual and institutional investors and financial intermediaries because of their relative low cost, tax efficiency and trading flexibility. Investors can purchase and sell shares through any brokerage firm, financial advisor, or online broker, and hold the funds in any type of brokerage account. The iShares customer base consists of the institutional segment of pension plans and fund managers, as well as the retail segment of financial advisors and high net worth individuals.

Carefully consider the iShares Fundsa investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Fundsa prospectuses, which may be obtained by calling 1-800-iShares (1-800-474-2737) or by visiting [ www.iShares.com ]. Read the prospectus carefully before investing.

Investing involves risk, including possible loss of principal.

In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Securities focusing on a single country and narrowly focused investments may be subject to higher volatility. Bonds and bond funds will decrease in value as interest rates rise. Asset allocation may not protect against market risk.

Transactions in shares of the iShares Funds will result in brokerage commissions and will generate tax consequences. iShares Funds are obliged to distribute portfolio gains to shareholders. Shares of the iShares Funds may be sold throughout the day on the exchange through any brokerage account. However, shares may only be redeemed directly from a Fund by Authorized Participants, in very large creation/redemption units.

This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any security in particular.

The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective.

The iShares Funds (aFundsa) are distributed by SEI Investments Distribution Co. (aSEIa). BlackRock Fund Advisors (aBFAa) serves as the investment advisor to the Funds. BlackRock Investments, LLC (aBRILa), assists in the marketing of the Funds. BFA and BRIL are affiliates of BlackRock, Inc., none of which is affiliated with SEI.

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