Quotes: MENA   Enter Symbol: NewsLetter: Search: advanced

Saudi - 2014 'will mark the end of monetary stimulus from global central banks'  Join our daily free Newsletter

MENAFN - Arab News - 30/12/2013
No. of Ratings : 0
Add to Mixx!



(MENAFN - Arab News) Economists are famous for making wrong predictions. In December 2012, most economists predicted the end of the euro, a hard landing of the Chinese economy and continued strong performance in emerging markets (EMs). Far from it, confidence in the euro was restored this year, Chinese growth is accelerating again and most EMs are suffering one of the worst economic crises in decades. So, how about next year?
According to QNB Group, 2014 will mark the end of the unprecedented monetary stimulus central banks around the world have engaged in since the global recession of 2009. This, in turn, will imply higher global interest rates, a healthy downward adjustment in asset prices and a rotation away from vulnerable EMs in favor of selected advanced economies. The road for the global economy is likely to be bumpy in the process.
Looking back, 2013 was marked by three significant developments in the global economy. First, the euro area finally came out of a long recession and confidence in the single currency was restored. This has enabled Ireland to exit the bailout program it entered in 2010. Ireland and Spain (and to a lesser extent Greece, Italy and Portugal) are also seeing the first signs of economic recovery. This trend is likely to continue in 2014.
Second, much of the worries about a hard landing of the Chinese economy turned out to be unfounded. Since 2009, the Chinese economy has grown by an average 9.2 percent a year and has contributed about half of the global output expansion. A slowdown in the first half of 2013 turned out to be temporary and the Chinese economy is now accelerating again, driven by an expanding middle class and a shift from the traditional export-led model to a more domestic consumption-driven one. As a result, QNB Group expects 8.0 percent-8.5 percent Chinese growth next year.
Third, the announcement on May 18, 2013 of a potential scaling back of the Fed 's asset purchase program - the so-called tapering of Quantitative Easing (QE) - turned the winds against most EMs. Global capital flew out, leaving EMs with large current-account deficits scrambling for cover. Brazil, India, Indonesia, South Africa and Turkey all experienced a substantial weakening of their currencies and a slowdown in economic activity. Brazil, in particular, entered into a recession in Q3, 2013. Capital flight is likely to continue as QE tapering is implemented next year. As a result, EMs will be forced to reduce their own economic growth in order to bring their current account deficits back to a sustainable level by tightening both fiscal and monetary policy.
So, where is the global economy heading in 2014? The answer lies in the direction of monetary policy going forward. Central banks around the world have engaged in an unprecedented monetary stimulus to get the global economy out of the Great Recession of 2009. In doing so, they have flushed the global economy with unprecedented amounts of liquidity. The Fed, for example, has increased its balance sheet fivefold to 4 trillion by purchasing US long-term government debt and mortgage-backed securities. This has reduced long-term interest rates (including mortgage rates) to historic lows, fueling house prices and equity indexes. In the meantime, the US economy is still struggling to gather significant momentum to achieve its long-term growth potential.
On Dec. 18, the Fed announced that it will reverse course starting in January 2014 by tapering QE. Inevitably, this will lead to higher long-term interest rates. According to QNB Group, the US 10-year bond yield is likely to rise to 3.5 percent in 2014. This will have a negative impact on the US housing market and construction activity. It will also reduce the wealth effect currently fueling higher US domestic consumption. In the same vein, equity prices are likely to be affected by higher interest rates through higher discounting of future earnings and lower dividends from weaker growth. For 2014, this may imply a healthy downward adjustment in asset prices, bringing them to a more sustainable level in line with fundamentals.
Other central banks are following the Fed's example. The ECB issued nearly 530 billion euros in crisis loans to European banks in March 2012, half of which have now been repaid. The Bank of England has announced that it will no longer increase its QE program and will instead start increasing interest rates once unemployment falls below 7 percent. The only exception is the Bank of Japan, which is sticking to its goal of doubling the money supply by outright purchases of government bonds.
Overall, the change in direction of monetary policy signals the end of an era of unprecedented cheap money. As interest rates rise globally, a downward adjustment in asset prices is inevitable. At the same time, a rotation away from more risky EM investments to safer asset classes in advanced economies is likely. According to QNB Group, this change in direction is going to be bumpy for the global economy as higher interest rates and lower asset prices will inevitably feed into weaker global consumption and investment.

 


Arab News




  MENA News Headlines
 Aug 27 2015 - Peninsula Energy in share consolidation ahead of NYSE MKT listingProactiveInvestors - Australia
(MENAFN - ProactiveInvestors)Pending U.S. uranium producer Peninsula Energy (ASX:PEN) will conduct a 40 for 1 share consolidation of its listed ordinary shares and options ahead of a listing on the ...

 Aug 27 2015 - Dubai's Al Habtoor seeks to borrow USD408mMENAFN
(MENAFN) Dubai's Al Habtoor Group is seeking to finance its property investments, and is intending to borrow USD408 million from local banks to achieve that.First Gulf Bank has stepped in to see the ...

 Aug 27 2015 - Saudi Red Sea mall unveils USD46.5m expansionMENAFN
(MENAFN) The Red Sea Mall, Jeddah's biggest shopping center, has just declared the beginning of its largest expansion project, estimated at USD46.5 million.This main stream project is considered the ...

 Aug 27 2015 - EGOTH prioritises investing in company's assets in FY 2015/2015: ChairmanDaily News Egypt
(MENAFN - Daily News Egypt) The profits of the Egyptian General Company for Tourism and Hotels (EGOTH) amounted to EGP 156m during fiscal year (FY) 2014/2015, according to the company's Chairman and ...

 Aug 27 2015 - Egypt- EGX rises minimally, remains affected by global performanceDaily News Egypt
(MENAFN - Daily News Egypt) The Egyptian Stock Exchange (EGX) recovery continued for a second trading day on Wednesday, after witnessing a continuous dropping pattern. The benchmark index EGX-30 ...

 Aug 27 2015 - Mahmoud Hussein: Youth without youth in Egypt's cellsDaily News Egypt
(MENAFN - Daily News Egypt) Mahmoud Mohamed Hussein was 18 years old when he was arrested. . Today he has grown a little older, and wonders at what age he will possibly be released from prison. Like ...

 Aug 27 2015 - Egypt- Rice exports haltedDaily News Egypt
(MENAFN - Daily News Egypt) Minister of Industry and Foreign Trade Mounir Fakhry Abdel Nour has issued a decision to stop exporting rice beginning in September.Abdel Nour explained in a statement ...

 Aug 27 2015 - Egypt- Boycott campaign seeks to lower skyrocketing meat pricesDaily News Egypt
(MENAFN - Daily News Egypt) campaign was launched on social media platforms in Egypt calling on citizens to boycott buying meat, in protest of the increasing prices of meat.The campaign said, on its ...

 Aug 27 2015 - UAE- DP World 1H profits increase 22%Daily News Egypt
(MENAFN - Daily News Egypt) Global marine terminal operator DP World announced that its profits for the first half of 2015 have increased by 22%, as the company handled more cargo in addition to ...

 Aug 27 2015 - Egypt- Controversial TV host Ahmed Moussa awaits court order on programmeDaily News Egypt
(MENAFN - Daily News Egypt) Controversial TV host Ahmed Moussa is facing a court decision regarding the halting of his daily programme, according to a decision issued Wednesday by the advisory board ...

more...


 






Google

Click to Apply

 
 

Middle East North Africa - Financial Network

MENAFN News Market Data Countries Tools Section  
 

Middle East North Africa - Financial Network
Arabic MENAFN

Main News
News By Industry
News By Country

Islamic Finance News
Private Equity News

How-To Guides
Technology Section

Travel Section

Search News

Market Indices
Quotes & Charts

Global Indices
Arab Indices

Commodoties

Oil & Energy

Currencies Cross Rates
Currencies Updates
Currency Converter

USA Stocks
Arab Stocks
 

Algeria 
Bahrain 
Egypt 
Iraq
Jordan 
Kuwait 
Lebanon
Morocco 
Oman 
Palestine
Qatar 
Saudi Arabia 
Syria
Tunisia 
UAE 
Yemen

Weather
Economic Calendar
Financial Glossary


Financial Calculators

RSS Feeds [XML]

Corporate Monitor

Events

Real Estate
Submit Your Property

Arab Research
Buy a Research

Press Releases
Submit your PR

Join Newsletters


 
© 2014 menafn.com All Rights Reserved.  Terms of Service | Privacy Policy | Contact Us | Advertise | About MENAFN | Career Opportunities | Feedback | Help