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Forecasting change for the global economy

By Zhang Monan: 0 Comment(s)Print E-mail China.org.cn, January 7, 2014

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[By Luo Jie/China Daily]

Five years after the financial crisis broke out on Dec 19, the US Federal Reserve began to end its quantitative easing, lowering its monthly bond purchase scale from $85 billion to $75 billion, and ushering the global currency financial environment into a new currency financial period.

Since 2010, the FED’s QE has achieved remarkable effects in de-leveraging the private sector and financial departments in the United States. The rise of the stock market and the recovery of the real estate sector have also improved families’ balance sheets quickly. The rises of wealth effects and property saving stoke sustainable recovery of consumption.

The three rounds of QE policies have also improved the growth quality and sustainability of the US economy as well as the driving force for economic growth. Economic output has recovered to its pre-crisis level. The rise of manufacturing production efficiency and the improvement of the trade balance have put the US economy on a sustainable recovery track. In this sense, the QE has basically fulfilled its historical mission and the recovery of monetary policy is imperative.

The withdrawal of QE will change the global currency financial environment and the direction of money flows. We can compare the global fund structure into such a format with the US as the core, the emerging economies as the surface layer, and Japan and the Europe as the middle layer.

In the past, the core consumed a lot, the surface layer produced a lot and the middle layer loaned a lot. In the future, the scenario will see big changes. The US economy is going to be driven by “entity reconstruction” more than consumption. The global fund is flowing to the US. Especially, the aging of Chinese society and Chinese government strategies of boosting domestic demands will inhibit the growth of global savings. The time when China provides the US with cheap financing could come to an end.

The FED QE will be completely ended by early 2014. It is probable that the FED will increase the interest rate for the first time in the second quarter of 2015, and increasing interest rate will become the main means of FED to adjust its monetary policies.

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