Economic Outlook For 2014

The setting up of this blog is to see how accurate I am in forecasting financial-economic events.

 Christmas is within grasp (thank fuck school is hectic) , I think it is the right time to make some bald predictions about what will happen next year.  Well, there is nothing for me to lose so why not be bald and predict what is going to happen?

2013 has been a  mixed year.  It has its ups and downs.  In the first-half of 2013, economists still believe it might take ages before we could get out of the recession.  PIGS was still a huge threat to the stability of the world.  Yet, as time passes by, the global economy seemed to have picken up the momentum, especially in the last two quarters. Special mention goes to the UK and USA, where virtually everyone thinks they were done when the global financial crisis broke out.  Yet, they have always been resilient and they are picking up the momentum.  The Autumn Statement 2013 which was released yesterday, revealed to us all that the growth forecast for Britain's economy was raised to 1.4% for year 2013 and they amended the growth forecast for 2014 from 1.8% to 2.4%, implying to us that the government is optimistic about the short-term economic prospect.  Thus, my first bald prediction is that the interest rates of UK/ around the world since this is an integral part for the recovery/normalisation of the economy.

As for the USA, since the outbreak of financial crisis, they had been in a complete mess.  Prosperity of the USA seemed to have gone with the bankrupted banks.  Yet, Obama and his cabinet had been working to bring prosperity back.  They nearly ruined all their hard work when the Senate shut down back in mid-october.  Anyways, through signing of various trade treaties and creating incentive for reshoring of manufacturers, USA managed to create more jobs.  Their latest unemployment rate fell to a five-year low of 7%, manifesting to us that Obama's decision of spending billlions on creating jobs a few years ago (in spite of restraining financial conditions) starting to pay off.  Moreover, the PMI rose to 57.8, which is the highest in the recent two years, reflecting that producers regained their confidence and is thus more willing to produce more. So, the American economy is definitely picking up as well and the impact that they have on the global market shall not be overlooked.  This led to my second bald prediction - USA is going to start tapering in year 2014.  Obamacare will again be brought up in the Senate as by then, Obama will have 'economic recovery' as his trump card to justify his decision in the passing through of ObamaCare.

Moving on to China, this awakened dragon seemed to be feeling a bit tiring.  China's third quarter growth was seen at 7.6% , lowest since 2008.  I have always been wondering, how long can China's growth sustain?  Its economic growth was generated in a unique way.  It exploited their comparative advantage in cheap manual labour to the fullest, manifested in their production in IPHONEs and virtually everything was made in China, which was quite a primitive means in the 22nd Century.  However, other developed economies, such as Singapore, generated economic growth via high-end manufacturing, i.e. producing high-tech products/services, e.g. producing ATM systems. We should be aware of the fact that China's labour force will shrink significantly in the long-run due to 'One-Child' Policy thirty years ago and the positive effects in promoting education to the mass public has yet to shown and more importantly, we are uncertain whether Premier Li Keqiang's reformation policies will work, so, I hold a bearish stance on China's long-term prospect.   As  for their prospect in 2014, I believe their economic growth rate will continue to slow down as the interest rate cap inhibited consumers from spending and nudged them to saving.  However, we should expect a tide of foriegn capital rushing into China due to Chinese government promising to relax the capital control on RMB and make RMB a freely floating currency.  So, the big question is whether this rush in FDI will generate more job and more spendings. Yet, we should be aware of the fact that Chinese is good at bluffing so they might not liberate RMB next year, let alone in the foreseeable future.  

In short, I hold a bullish stance on the global economy 2014.  Unless there is a breakout of unexpected devastating events such as massive epidemic breakout or the PIGS defaulted, something along that line, otherwise, we all have a reason to be optimistic.

If you are still hesitating whether to invest now or later, I suggest you invest now as it is now the last chance.  Three years later, the world will be back to the crazy, pricy one.