Taken at face value, David Cameron’s warning this week about risks in the global economy sounds like it might be wonderfully prescient. Here’s the country’s economic chauffeur, carefully checking his instrument gauges, and sure enough, sees the same signs today that should have given us warning of the crisis of 2007-08. Time to apply the brakes.
A direct link has been established between Hong Kong and Shanghai’s stock exchanges. The so-called Stock Connect means investors in Hong Kong can now buy shares listed on the Shanghai Stock Exchange via their local brokers and vice versa. This is a milestone moment for China as it further opens the door to investors, liberalises its capital market and promotes the internationalisation of its currency, the RMB, through the two-way share dealings of investors in both markets.
On 17 December 2013, Prime Minister Shinzo Abe issued Japan’s first National Security Strategy (NSS). The document declares that Japan will make a more ‘proactive contribution to peace’ based on the principle of international cooperation. It also outlines three basic goals for Japan’s national security — ensuring the nation’s territorial sovereignty, improving the security environment in the Asia Pacific region by cooperating with the United States and other regional partners, and active participation in global efforts to maintain international order.
The past week has seen big breakthroughs in Asia Pacific economic diplomacy. At the APEC summit, Xi Jinping and Shinzo Abe broke the diplomatic ice in the China–Japan relationship. The United States and China paved the way towards extending the successful International Technology Agreement through the WTO. They also did a game-changing deal that will entrench deep cuts to carbon emissions through to 2025–30. China brought trans-regional (as opposed to Eastern and Western Pacific) integration back to centre stage in APEC’s quest for open regionalism.
The overall theme today appears to be one of consolidation, encouraged by European data, which included a slightly higher than expected UK CPI and a considerably better German ZEW survey. Japan’s Prime Minister Abe has not disappointed the market, delaying the sales tax hike and calling for elections next month.
Despite extreme money printing and aggressive growth targets, the Bank of Japan has failed to bring Japan into growth as the world’s third-largest economy falls into recession.
Data released on Monday showed that the nation’s GDP fell 0.4% in the third quarter of 2014, causing an annualized economic contraction of 1.6%. A combination of higher taxes and demographic pressures are being blamed for the slump.
The historical impact of Republicans taking over the senate this year has given the Republicans a powerful chance to reshape the landscape of the United States that has been in turmoil these last six years. This is mainly because of President Obama’s Affordable Care Act, which, if you look at the numbers, is anything but affordable.
Overall, the economies of Asia are a bull element in global recovery and long-term development. The advanced countries, although less so now the United States, remain a drag on the world economy with no sign that Europe is likely to emerge from stagnation any time soon. Kemal DerviÅŸ and Homi Kharas point out that some argue that the European economies (and perhaps Japan) are doomed, through demographic and technological circumstance, to a long period of very low rates of growth; that their potential rate of growth is likely not much above their actual growth in recent times.
The APEC summit has only just ended, but like the return of hazy skies over Beijing, clouds of uncertainty surrounding the regional forum have again drifted overhead. This is familiar weather for APEC, a grouping that has faced questions about its future for well over a decade. On the face of it, China’s year of hosting APEC has given a level of attention to the regional grouping that should stand it in good stead for the foreseeable future. However, if in years to come we look back to identify the year that APEC peaked, perhaps 2014 is that year.
There were few notable developments out of the G20 meeting that would directly impact EM markets. However, the escalating tensions with Russia made evident in the meeting have increased to the point that it could again lead to spillover effects. Separately, the political climate in Brazil is heating up again and starting to feel like a “3rd round” in the electoral dispute. President Dilma is coming under huge pressure to appoint a finance minister, while the corruption scandal surrounding Petrobras deepens further.
