Breaking Out Is Hard
The world’s major economies understand the structural changes they need to make to ensure growth, but it’s easier to wait for someone else to act first
The global economy is unlikely to accelerate in 2014. The hope that the U.S. economy is reaching escape velocity won’t pan out. Abenomics is likely to fizzle out in 2014. Emerging economies will likely remain in low gear. The chances are that the global economy, weighted by nominal GDP at current exchange rates, will grow at 2 percent. […]
Keynes Is Dead [Globalization – newly defined] […] I have argued for many years that this round of globalization has fundamentally changed how an economy works, even for a large one like the United States. While demand is and always has been local, the supply side has become genuinely global. Both manufacturing blue-collar jobs and most white-collar jobs have become global. Today’s information technology allows a multinational company to position research, marketing, finance and managerial jobs anywhere. Hence, when a country stimulates demand, it’s met by supply from anywhere. […]
Abenomics Fizzles [Pessimistic about Japan] […] The Abenomics bubble is likely to burst in 2014. The manifestation is for the Nikkei to come down by 30%. Japan’s fundamental problem is the rigidity of its corporate sector. Unprofitable industries keep going with cheap debt and not caring about shareholders. Its electronics industry is a good example. Globalization is making more of Japan’s industries uncompetitive. The petrochemical industry is next. […]
Shaky Ground [Pessimistic about Australia and Africa] […] I have been talking about the Australian economy heading down due to the bursting of its mining-investment bubble. This story remains intact. The worst will pass only when the financial system is cleared of related non-performing assets.
Many African economies could suffer quite badly this year. There has been a gold rush in Africa. Big mining companies have been pouring in money. As the money stops, there could be severe consequences. Many African economies have built up their cost base on the back of new capital inflow. It would be difficult to cut it back. […]
Every Man for Himself [Way Forward] […] The only sustainable way out is to increase competitiveness through structural reforms. It increases growth potential through higher efficiency. Most major economies could identify a few key issues impeding economic growth: health-care costs in the United States, labor-market rigidity in Europe, zombie industries in Japan, insufficient infrastructure in India and overinvestment in China. Imagine that these big issues are all tackled. What could the global economy grow at? Four-percent growth could return. […]
China Should Move First[…] China’s debt is growing much faster than GDP, while OECD economies are the opposite. If the world is stuck in this equilibrium for long, China is likely to experience a debt crisis before the others. This should be the incentive for China to seek a solution first at home and abroad.
I have proposed that China should push an FTA with the EU. It is the only viable trade deal that could add significantly to the global economy. The EU collectively is a larger trader than China. Combining the two in a free-trade area may force other major trading nations to join the block. It could lead to what the WTO wanted but failed to accomplish.
Cutting investment to 30% of GDP by 2020 is a viable domestic target that could start a consumption-led growth cycle. The current 50% level is so far beyond what is needed that waste on a large scale is inevitable. Hence, cutting investment will not weaken the supply side. It just transforms waste into household income and demand. China could bring back a double-digit growth rate with such a strategy. […]
Detailed analysis can be found here…
Dr Andy Xie 謝國忠 is Shanghai-based independent economist specialising in China and Asia. He is currently director of Rosetta Stone Advisors and of China Boqi Environmental Science and Technology.
Dr Xie is one of the few economists who has accurately predicted economic bubbles including the 1997 Asian Financial Crisis and the more recent subprime meltdown in the United States. He joined Morgan Stanley in 1997 and was Managing Director and Head of the firm’s Asia/Pacific economics team until 2006. Prior to that he spent two years with Macquarie Bank in Singapore, where he was an associate director in corporate finance. He also spent five years as an economist with the World Bank.