Call it the year of feast and famine.

Many of the world's big advanced economies have pledged frugality for 2011 while fast-growing emerging markets run the risk of overheating. The global economy must withstand both forces in order to live up to growth expectations.

Dictionary company Merriam-Webster ranked austerity as its No. 1 word of the year for 2010 because so many people looked up the definition on the company's website when Europe's debt troubles exploded. (This wasn't the first time the global economy featured so prominently. Two years ago, the top word was bailout.)

Many of those austerity promises kick in next year. Portugal has proposed 5 percent pay cuts for civil servants. Spain's parliament approved a budget that includes a 7.9 percent reduction in public spending. Ireland plans to cut 4 billion euros in spending.

Those budgetary measures are part of the reason why economists polled by Reuters think the euro zone economy will slow to a 1.5 percent rate next year, down slightly from 2010's already sluggish 1.7 percent pace.

The risk is that a synchronized round of fiscal constraint puts an even bigger-than-anticipated drag on growth.

The International Monetary Fund estimates that after two years, a budget deficit cut of 1 percent of GDP lowers economic output by one-half of a percentage point and raises unemployment by one-third of a point.

The United States faces its own austerity fight as Republicans in Congress push for spending cuts. U.S. economic growth for 2011 looks somewhat stronger than Europe's although still well short of what is needed to repair the job market.

Sung Won Sohn, a California State University economist, expects 3 percent growth next year but says the lack of jobs remains the Achilles heel of the economy.

Sohn, who is also vice chairman of clothing retail chain Forever 21, said the poor labor market may constrain consumer spending next year despite a surprisingly strong 2010 holiday shopping season.

American consumers want to save more, pay down the debt and put their financial house in better shape, he said. As long as the consumers are in a cautious mood, in part emanating from the lackluster job picture, it is hard to have healthy economic growth.

GOODBYE G7, HELLO G20

It is no secret that emerging markets are growing far more quickly than advanced economies. The IMF estimates emerging markets will grow by 6.4 percent next year, almost three times the rate of developed nations.

Overall, the IMF expects 4.2 percent global growth for next year, which would be a step down from 2010 but well above the recession-hit rates of the previous two years.

Strong performances in China, Brazil and India have boosted global trade, helping to prop up growth in the United States, Europe and Japan.

Goodbye G7 and hello G20! said Andreas Utermann, chief investment officer of fund firm RCM, referring to the Group of 7 developed economies and the larger G20 club of rich and emerging nations.

Those diverging growth rates have fostered another troublesome feast-and-famine zone -- commodity prices. The price of oil edged closer to triple digits last week and food prices are also on the rise, in part because of strong demand from emerging markets.

China has taken steps to try to cool down its inflation without putting too much of a chill on the broader economy, and economists widely expect more tightening next year.

In the United States, however, the Federal Reserve still sees deflation as a bigger threat than inflation, and recently recommitted to buying $600 billion in assets to try to spur stronger growth.

The Fed typically focuses on core inflation that excludes volatile food and energy prices, but consumers eat and drive and must therefore budget for higher costs. If those prices continue to rise, that could dampen spending.

The Fed's deflation-fighting efforts drew criticism at home and abroad that it would unleash a potentially inflationary flood of cheap money into the world economy without doing much to lift U.S. growth or lower unemployment.

RCM's Utermann said the Fed's program may lead to sub-optimal investment decisions that create dangerous asset price bubbles elsewhere.

We need to look out for signs of bubble creation ... in commodities, emerging market property, or long-term (government) debt -- and brace ourselves for continued very volatile capital market conditions.

(Editing by Dan Grebler)

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