Asia Pacific - Economic Compass 2014

Asia Pacific - Economic Compass 2014

Written By Stock Fanatic on Saturday, December 7, 2013 | 7.12.13

Managing growth transitions

2014 will be a watershed year for the global economy and financial markets as investors continue to keep an eye on the Fed's untested dialing-back of monetary stimulus. We expect the monetary exit to be orderly as long as the withdrawal is well timed, carefully calibrated and clearly communicated. Amid the tail risks and event risks in the US, we believe that the emerging economies will successfully manage their growth transitions in an environment of tightened liquidity or capital inflows and rising interest rates. 

The domestic drivers, aided by a moderate recovery in exports, are expected to support the uneven growth momentum in emerging economies.

"The recovery is real, but at a slow speed, and there may be turbulence on the horizon. There is a risk of another brinkmanship in the US, and there is also a risk that tapering of asset purchases by the US Federal Reserve could bring a renewed bout of instability.”

– OECD Secretary-General Angel Gurria

2014 - a year of untested growth transition

The global economy is expected to end the year 2013 on a mixed note, with further improvement in the mature economies but a general slowdown in growth for the emerging economies. The challenge in 2014 will be managing global growth transitions in the face of less buoyant capital flows in the emerging markets. From 2015 onwards, the challenge will be the rising interest rates in the mature economies.

Continued divergence in global growth dynamics

Amid tail risks and event risks in the US, the impetus for global growth will come from the G3, with the US economy taking the lead, underpinned by solid private demand. Japan's buoyant economic rebound will normalise in 2014 as the stimulus spending unwinds while the eurozone’s growth drivers will stabilise after emerging from a recession. China will continue its transition to a more balanced and sustainable growth path.

EM - not slow in strengthening growth drivers

The growth momentum in the emerging markets (EM) is coming off its cyclical peak due to cyclical and structural reasons in China and India. Faced with the progressive tightening of external funding conditions due to the capital reversals, the emerging markets will be compelled to define their growth prospects and relative attractiveness.

The growth drivers are still the low real interest rates that foster consumption and investment, aided by the moderate pick-up in exports. Certain economies are expected to expedite their structural and policy reforms to ensure sustainable growth drivers, with private sector spending calling the shots, backed by targeted fiscal support.