Global economy searches for a happy ending
Bob Baur and Robin Anderson are cautiously optimistic of a resolution, but expect a sequel
Bob Baur and Robin Anderson
In a lot of ways, the current global economy feels like the beginning of the third and final act of a story.
The second act ended with the global financial crisis, which decimated economies across the world. So the third act begins in search of resolution. Policy uncertainty will be the chief issue facing the US; in Europe, Greece's ability to meet its obligations and the euro zone's attempts to regain growth will be important factors this year. For Asia, 2013 holds in store two particularly pivotal plot devices.
The ancient Greeks developed a plot device that could seemingly solve any complex problem. A deus ex machina (literally "god from the machinery") is an abrupt, somewhat unexpected solution that appears as if from nowhere. In China, the complex problem is getting the economy restarted, and the deus ex machina is Xi Jinping, who is expected to implement a series of long-awaited stimulus measures.
Overall, the new leadership appears supportive of growth. Urbanisation, discouraging ostentatious displays of officialdom, and attacking corruption have all been key points on Xi's agenda, and as a result, Chinese economic growth should regain its momentum.
Meanwhile, in Japan, the plot device that will seemingly inject some action into the third act of the country's economic recovery is called "Chekhov's gun". The "gun", named after playwright Anton Chekhov, is used to foreshadow an upcoming twist. It is based on the idea that if the audience's attention is focused on a pistol, then, at some point, one of the characters will surely reach for it.
This foreshadowing is currently on display in a political drama featuring Prime Minister Shinzo Abe and the governor of the Bank of Japan, Masaaki Shirakawa. Abe has developed some bold ideas on monetary policy, including a potential plan that would force the BOJ to buy construction bonds directly from the government as a method of taming deflation. This has put Abe on the receiving end of a number of jabs from Shirakawa, whose term expires in April.
Abe is pushing for aggressive action to weaken the yen, which, if successful, will benefit Japan's export-driven economy. At the same time however, outright debt monetisation, which is what Abe is calling for, could cause yields on Japanese government bonds to spike and would add to the already crushing Japanese debt.
So will 2013 resolve all of these issues? That's not likely, but that's why we have sequels.
Overall, global growth should regain some momentum, but the likely resolution will be more akin to that of a European film, leaving audiences to ponder, rather than the typical Hollywood fare, which tends to tie up loose ends.
Bob Baur is chief global economist and Robin Anderson is an economist at Principal Global Investors