Analysis | 2018 likely to be serious year of reckoning for global economy
The head of research at Caitong International Securities outlines what the world can expect to get thrown at it from the markets next year
2018 is likely see the world embroiled in slower economic growth, yet higher inflation and interest rates, aka stagflation.
A decade of reckless money printing and loan growth, which fuelled unsustainably high debt in all major economies, will finally meet its antidote: higher inflation.
It will add to the burden of debt servicing, begetting more debt, and culminating in devaluations of all currencies, particularly the US dollar against hard resources.
Devaluation of the US dollar will result in a monumental change. The 10 per cent decline of the dollar index this year is primary a consequence of runaway US budget deficits, which invariably permeates into the current account deficit, and then worsens net external position.
Shrinking receipts and rising welfare expenses will erode the budget deficit beyond 3.5 per cent of gross domestic product. Tax cuts have never boosted growth and payback themselves.
The US dollar will resume devaluing against metals, ores, energy, and other currencies. That the dollar index futures open interest, steered by money managers, is crashing speaks volumes.