The global economic environment shows signs of improving, but in fits and starts. Troubling events keep getting in the way of an unambiguously positive story. Still, the story appears to be getting better. Financial market stress in Europe remains at manageable levels despite the crisis in Cyprus. In the United States, a substantial contraction of fiscal policy appears to be offset by other positive factors. In Japan, a new monetary policy holds promise of better growth. Here are the highlights of this quarter’s Global Economic Outlook.
We begin with Alexander Börsch’s analysis of the Eurozone economy. Alexander’s view for Europe is relatively optimistic: He continues to believe that the immediate risk of Eurozone failure remains low. In addition, he believes that the Eurozone will “return to feeble growth” in 2013. He worries, however, that Europe could be condemned to a prolonged period of low growth if it continues to experience low investment.
Next, Patricia Buckley opines that the recovery in the United States is likely to accelerate. She says that fiscal austerity “will definitely dampen the rate of acceleration, but will not be sufficient to actually stop it.” Among the positive factors she cites are a revival of household wealth and unusually slow household formation. The latter has created pent-up demand for new homes. Patricia notes, however, that there remains uncertainty about future fiscal policy.
In our next article, I offer my views on the Chinese economy. Specifically, the outlook seems mixed, with positive news about exports and investment but mixed news about the overall performance of the manufacturing sector. In addition, I discuss potential policy initiatives of the new government, including a possible dismantling of the much-maligned residency permit system.
Next, I discuss the radically new policy of the Japanese government. This includes fiscal stimulus, monetary expansion, and freer trade. Although it is too early to say whether the new policy will be effective, it is clear that it is already having an impact on financial markets. Japanese equity prices have risen, and the yen has fallen. The latter should ultimately be helpful to export growth.
In our next article, Pralhad Burli offers a cautiously optimistic view on the Indian economy. He suggests that the worst is over as the global economy shows signs of revival. He notes that business confidence is improving as a result of better global economic performance and anticipated economic reforms in India.
Finally, in our last article, I offer some thoughts on the controversy over government deficits. Given that there are substantially different fiscal policies in the United States versus Europe, and dramatically different views among policy makers in both parts of the world, it is useful to consider the arguments. In this article, I look at the pros and cons of deficits, the theories underlying the arguments, and the lessons to be learned.
Read the GEO articles: