Courtesy of Mish.
Economist Andy Xie has an interesting article in CaixinOnline that contains his views on 2014. I agree with nearly all his viewpoints but one.
Please consider Breaking Out Is Hard by Andie Xie.
The global economy is unlikely to accelerate in 2014. The hope that the U.S. economy is reaching escape velocity won’t pan out. Abenomics is likely to fizzle out in 2014. Emerging economies will likely remain in low gear. The chances are that the global economy, weighted by nominal GDP at current exchange rates, will grow at 2 percent
Globalization, turbo-powered by information technology, has cut short the feedback loop between demand stimulus and supply response. Any growth response to demand stimulus is short-lived, as past five years has demonstrated.
Holding down costs of non-tradeables like housing, health care and education is the key to economic competitiveness and sustainable growth. Any economy that grows on inflating such non-tradeables through stimulus will pay back with low growth later.
Keynes Is Dead
I have argued for many years that this round of globalization has fundamentally changed how an economy works, even for a large one like the United States. While demand is and always has been local, the supply side has become genuinely global. Both manufacturing blue-collar jobs and most white-collar jobs have become global. Today’s information technology allows a multinational company to position research, marketing, finance and managerial jobs to anywhere. Hence, when a country stimulates demand, it’s met by supply from anywhere.
Abenomics Fizzles
Japan had two quarters of high growth, so many became convinced that Abenomics was the real deal. The data tailed off toward the usual Japan level of 1 percent in the third quarter and likely in the fourth quarter, too. Financial markets have become wobbly lately as growth momentum cools off. But the Nikkei is still at a lofty level. Too many have a vested interest in believing in Abenomics to jump ship now. When bad numbers continue for another two quarters, they will.
The Abe government has been asking Japanese companies to raise salaries to sustain the economic momentum. Even if the salary increase comes through, as people know it was forced and not likely sustainable, why would they spend it?
Shaky Ground
High commodity prices led to a frenzy in the sector’s investment. The 2008 crisis prompted a pause. It continued in the following three years. Huge amounts of capital were poured into high-risk projects. The risk to commodity economies is the bursting of this investment bubble, not reduced income due to lower commodity prices per se….
