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A rebalancing of demand in favor of emerging markets, especially China, and confirmation that policy makers are resisting an early exit from stimulus policies have buttressed prospects for the recovery to continue into next year. However, the Greek crisis and its possible spread to other uncompetitive and fiscally vulnerable Euro area countries that together account for 7.
Upward revisions of GDP growth estimates for the fourth quarter of in the United States and the UK are signs of strength in the global recovery. The Asian Development Bank is revising its economic growth forecast for developing Asia to around 7 percent, up from 6. Several emerging markets are returning to trend growth, including China, India, Indonesia, and Argentina. World trade remains below its pre-crisis peak but is expanding very rapidly.
World trade rose at a record monthly pace of 4. Imports in emerging economies grew 7. The manufacturing sector has continued to expand as well. Importantly, growth also appears to be extending into services. The U. Despite these improvements, however, private sector demand growth in the advanced countries remains fragile and overly dependent on government stimulus amid high unemployment, weak housing markets, and hesitant consumers.
Declining external deficits and surpluses represent another encouraging development that enhances the sustainability of the recovery. Total current account imbalances, the sum of current account balances across deficit and surplus countries in absolute value terms, narrowed to 3. Imbalances are expected to expand only marginally in Given the relative strength of the recovery, however, the U. Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, has risen by about 8 percent since November.
Returns in equity and bond markets there have also been spectacular, with the MSCI Emerging Markets Index doubling over the last year, though there has been little change since December Strong growth and balance sheet fundamentals appear to justify these advances. The Brazilian Bovespa and Mexican Bolsa, for example, are only 6. In China, property prices in 70 cities rose Though it is too early to speak of a speculative bubble in emerging markets, prospects for very low interest rates in the advanced countries continuing well into and the wide growth gap favoring emerging markets suggest that the classic conditions for a bubble may be starting to build.
A sovereign debt crisis affecting all or a subset of these countries will slow European growth, depress the euro, and could eventually spill over into a global confidence crisis that would affect some vulnerable emerging markets Turkey is one example and other advanced countries.
Europe Under Stress Greece is likely to be rescued by the IMF or its European partners, or at least supported in an orderly restructuring of its debt, but its competitiveness problem will persist for years to come.
Even if its structural adjustment measures succeed, they will take years to complete and Greek growth will remain depressed. The same will apply— though to a lesser degree—in the other vulnerable European countries. These problems will severely test the political support for the European project in the vulnerable countries as well as in Germany and the other countries that will have to come to the rescue.
One or more countries leaving the Euro area, though still a low probability scenario, can no longer be ruled out. Exit Strategies Will Remain Cautious Though countries are already paving the path to exit from stimulus, and some, like Australia, have taken steps along it, the larger advanced economies are maintaining expansionary monetary and fiscal policies and are likely to continue to do so at least into , reflecting the weakness of private sector demand.
Although the Fed may raise U. Given the serious risk of prolonged stagnation in the European periphery, there are worthy arguments for Germany, and other countries that can afford it, to increase fiscal stimulus in the coming years, and for the European Central Bank to maintain its expansionary stance for the foreseeable future. Monetary policy will remain expansionary in Japan as well. In emerging Asia, where the recovery began, policy makers have already begun to wind down stimulus efforts.
Over the past two months, China has increased reserve requirements several times and repeatedly urged banks to curb lending. As economies continue to recover at different speeds and international interest rates remain low, the coming years will be marked by increased carry trades and exchange rate fluctuations, implying a heightened risk of bubbles and speculative attacks. Sovereign debt problems, which had disappeared from sight in the pre-crisis years, have again become a central source of risk—underscoring the need for policy makers to develop credible, long-term fiscal consolidation frameworks and to build the political consensus necessary to execute them once the global recovery is on firmer footing.
Posted on Sustainabilitank. The Japanese economy posted growth in the last quarter, but I would like to make a few observations about the components of the growth. The revised figures for gross domestic product in October-December , announced on March 11, showed that economic activity grew 0. While faster than anticipated progress in inventory adjustment was one of the factors that contributed to the downward revision of the preliminary quarterly GDP figure of 1.
But closer examination of the data behind the rosy results raises some questions. First, it should be noted that the 0. Personal consumption — the largest component of GDP — expanded a robust 0. However, we need to be aware that these programs are eating into future demand. Consumers are believed to be pushing up purchases of new cars and TVs to beat the deadline for the popular programs whether their older products are still usable or not.
Naturally, these programs cannot be continued indefinitely. Similar campaigns in other advanced economies show that spending can drop off rapidly once the incentive programs end. It is unlikely that Mr. It carries 11 electoral college votes.
When looking at the U. Maple Leaf Foods beat and in the U. Zillow is up sharply on a positive outlook. Currencies This morning ForexPro noted that the thesis behind the optimism for the U. The Canadian dollar, the yen, the euro — all have screamed higher against the big dollar. Who wants a strong currency — certainly not the Japanese nor the Europeans and probably not the Canadians either.
Is monetary policy broken not a new thought for sure? Oil inventories will be released at this morning with another build of , barrels expected note that oil inventories are at an absolute record still. Last night, the API numbers rose 1.
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