Despite the volatility in financial markets, Non-Japan Asia (NJA) currencies continue to behave broadly in line with historical patterns. Specifically, a basket of NJA currencies (excluding the renminbi) which was appreciating at about 3% month-on-month versus the USD dollar is now weakening in month-on-month terms, as largely predicted (see Figure 1). The pattern is similar when NJA currencies are measured against trading partner currencies. Read more
While equity and commodity markets have recovered, it is an almost consensus view that already tepid global economic growth in H2 2015 likely weakened furthered in Q3 and shows few signs of recovering near-term,
Governments, lacking in both leadership and fiscal-reflation headroom, have passed the buck to central banks struggling to hit multiple growth, inflation and financial stability targets.
However, talk of global recession let alone economic collapse is somewhat overdone and I reiterate my long-held view that the global growth story is a cause for concern, not panic (17 December 2014).
Global GDP growth has been mediocre but pretty stable in the past three years at around 2.4 and 3.2%, according to respectively World Bank and IMF estimates, so perhaps it is the expectation of a return to pre-2008 growth rates which is unfounded.
International institutions have revised down their global GDP growth forecasts for 2015 but history suggests that the IMF’s 2015 forecast of 3.1% growth may prove a tad too pessimistic.
The focus on China’s ill-defined “hard-landing” and “true” growth rate has obscured the fact that growth in US, still the world’s largest economy, is back to its long-term average.
Finally, while policy-makers are running out of tools to spur their economies, a number of emerging market central banks, including in China and India, still have room to cut policy rates further.
Four themes have hogged the headlines this year – Greece, China, the Fed and linking these three topics…the risk of deflation and associated damage to the global economy.
At the risk of over-simplifying a complex picture, what is striking is that global headline and core inflation have actually been pretty well behaved (see Figure 1). Further analysis shows that headline and core inflation have evolved in reasonably narrow ranges since early 2013 in the world’s largest developed economies as well as China and Mexico. The fact these inflation data series are a little boring is in itself noteworthy given that central banks typically favour low and stable inflation. Read more
The headline fall in Emerging Market (EM) central bank FX reserves in recent months is causing much consternation and talk of EM demise. But dig below the raw numbers and a more benign picture emerges, as I argued in Embrace, don’t fear, slowing accumulation of EM FX reserves (7 April 2015). Read more
Non-Japan Asian currencies up in past ten days, led by CNY, IDR and THB
Non-Japan Asian (NJA) currencies have staged a mini comeback since mid-May, in line with my expectations that precedent suggested that NJA currencies would stabilise and possibly appreciate gradually after a month of relative weakness (see Asian currencies still on the straight and narrow, 15 May 2015). Read more
After months of half truths, hollow promises, claims of greatness, veiled threats and televised showdowns, it’s finally over. No, I’m not referring to the overhyped but ultimately disappointing Mayweather vs Pacquaio “fight-of-the-decade”, but the far more unexpected outcome of the UK general election. The ruling Conservative Party has comprehensively won the battle and war for the hearts – or at least the minds – of UK voters.