Presentation on theme: "The Global Economy: The New “New-Normal” by SEBASTIAN EDWARDS Henry Ford II Distinguished Professor of International Economics, UCLA Círculo de Economía,"— Presentation transcript:
The Global Economy: The New “New-Normal” by SEBASTIAN EDWARDS Henry Ford II Distinguished Professor of International Economics, UCLA Círculo de Economía, Sitges, May 2014
The end of four cycles n China’s super growth cycle n The U.S. super borrowing cycle n The monetary expansion cycle n The Euro Zone crisis cycle
Also will affect China’s foreign investment strategy n More selective, more parsimonious. n Demand for Treasuries will decline; this will contribute to steeper yield curve in US n Will concentrate on two areas: –Selected companies in key industries in advanced countries, such as the pork meat provider (Smithfileld) in Virginia. –Natural resources (mostly metals) in Africa and some LATAM countries.
Implications n Stronger USD. n A higher and flatter yield curve. n Faster growth in United States. n An open question is what will happen to property prices. New bubble? –Market specific; location will matter
3. The end of the Super Expansive Monetary Cycle: Will it Happen? Should it Happen?
The problem is this: n Bringing the cycle to an end makes (some) sense in U.S. Is it happening? n But it is clearly premature in Euro Zone (in spite of whatever the German’s may say) n And it is very premature in Japan (in spite of whatever Abe opponents may say) n And yet, we are likely to see (some) synchronicity across these three key players. n In Japan the money slowdown plus the new consumption tax could be very negative.
4. The end of the Crisis Cycle in the Euro Zone
Euro Zone Interest Rates: Germany, Ireland and Spain
The fear of massive default and restructuring has disappeared
The problem is this: n The reforms have stalled and are unlikely to move forward at the required pace; moreover, they will not be as deep as they are needed n This is true both for the Euro Zone – and the EU, for that matter -- as a whole, and for individual countries. n Unfinished business: unified fiscal policy, unified banking supervision, labor mobility and flexibility, European Constitution, among others.
The reforms and competitiveness n Doing Business Ratings –Spain 2007 = 39 –Spain 2014 = 52 –Germany 2007 = 21 –Germany 2014= 21
Euro Zone inherent instability n The Euro Zone will continue to be structurally unstable n Germany will have the advantage of a undervalued currency (“currency manipulator”?) n The periphery will face the disadvantage of a permanently “overvalued currency”
This picture will have a negative effect on: n Countries with high current account deficits n Nations with high public sector debts n Countries with high foreign currency indebtness n Countries with large GEFR n Countries with overextended construction sectors
They will have higher rates, larger primary deficits, and more depreciated currencies:
Currency questions in advanced nations Yen Euro
The good and the bad… n Negative watch list: –Brazil, –Japan, –EU Mediterranean periphery, –Indonesia –Colombia –Turkey –Egypt –Malaysia –South Africa n Positive watch list: –USA –Germany –Switzerland –Mexico –China –Indonesia –Ireland –Australia –New Zealand