- What kind of recovery is in store?
Investors and policymakers are in general agreement that the world economy has entered a recovery phase. The question now is what kind of recovery can we expect? In our view, this will be an uneven recovery, with the US and Europe, in particular, trudging slowly along the recovery path given their impaired financial systems and continued deleveraging, especially by households which are rebuilding their tattered finances.
- Asia: From rebound to recovery
Asia is leading the charge in the global recovery as both demestic demand and exports are gathering momentum. Financial markets have rebounded and private capital has begun to flow back as investors are regaining an appetite for risk. But there are still doubts about whether Asia has built up sufficient momentum for a self-sustaning recovery if the G-3 economies recover at a snail-like pace.
- Central banks to signal end to policy largesse?
As there are clearer signs of global economic recovery, financial conditions have stabilised amid improved credit markets. Major central banks are starting to prepare their exit strategies or are even gradually unwinding the unconventional liquidity measures they introduced early this year to stave off a second global depression. Although the Fed, Bank of Japan, European Central Bank and Bank of England have all signalled that quantitative easing will be gradually unwound by next year, it may be some time before interest rates are increased. Mounting concerns over new asset bubbles in Asia have prompted some central banks to tighten regulations and rein in the excessive run-up in asset prices. Some central banks have implemented capital controls to thwart the speculative inflows. In our opinion, most central banks will start to signal a shift and rein in the excessive run-up in asset prices. Some central banks have implemented capital controls to thwart the speculative inflows. In our opinion, most central banks will start to signal a shift to monetary tightening no earlier than 2H 2010.
- Asian currencies at turning points
Bolstered by strengtening economic growth prospects and a growth differential which is in Asia's favour, regional currencies will climb back on an appreciation path for the greater part of 2010. That said, regional central banks' fear of the impact of stronger currencies on export competitiveness is likely to limit the magnitude of the appreciation.
- Major risks to the outlook
Include (i) a weaker-than-expected recovery in the developed countries;
(ii) new asset bubbles;
(iii) mistiming of economic stimulus withdrawal or premature monetary tightening, and
(iv) a slower-than-expected pick-up in private sector demand.
What kind of recovery is in store?
Investors and policymakers are in general agreement that the world economy has entered a recovery phase. The question now is what kind of recovery can we expect? In our view, this will be an uneven recovery, with the US and Europe, in particular, trudging slowly along the recovery path given their impaired financial systems and continued deleveraging, especially by households which are rebuilding their tattered finances.
Investors and policymakers are in general agreement that the world economy has entered a recovery phase. The question now is what kind of recovery can we expect? In our view, this will be an uneven recovery, with the US and Europe, in particular, trudging slowly along the recovery path given their impaired financial systems and continued deleveraging, especially by households which are rebuilding their tattered finances.
Asia: From rebound to recovery
Asia is leading the charge in the global recovery as both demestic demand and exports are gathering momentum. Financial markets have rebounded and private capital has begun to flow back as investors are regaining an appetite for risk. But there are still doubts about whether Asia has built up sufficient momentum for a self-sustaning recovery if the G-3 economies recover at a snail-like pace.
Asia is leading the charge in the global recovery as both demestic demand and exports are gathering momentum. Financial markets have rebounded and private capital has begun to flow back as investors are regaining an appetite for risk. But there are still doubts about whether Asia has built up sufficient momentum for a self-sustaning recovery if the G-3 economies recover at a snail-like pace.
Central banks to signal end to policy largesse?
As there are clearer signs of global economic recovery, financial conditions have stabilised amid improved credit markets. Major central banks are starting to prepare their exit strategies or are even gradually unwinding the unconventional liquidity measures they introduced early this year to stave off a second global depression. Although the Fed, Bank of Japan, European Central Bank and Bank of England have all signalled that quantitative easing will be gradually unwound by next year, it may be some time before interest rates are increased. Mounting concerns over new asset bubbles in Asia have prompted some central banks to tighten regulations and rein in the excessive run-up in asset prices. Some central banks have implemented capital controls to thwart the speculative inflows. In our opinion, most central banks will start to signal a shift and rein in the excessive run-up in asset prices. Some central banks have implemented capital controls to thwart the speculative inflows. In our opinion, most central banks will start to signal a shift to monetary tightening no earlier than 2H 2010.
As there are clearer signs of global economic recovery, financial conditions have stabilised amid improved credit markets. Major central banks are starting to prepare their exit strategies or are even gradually unwinding the unconventional liquidity measures they introduced early this year to stave off a second global depression. Although the Fed, Bank of Japan, European Central Bank and Bank of England have all signalled that quantitative easing will be gradually unwound by next year, it may be some time before interest rates are increased. Mounting concerns over new asset bubbles in Asia have prompted some central banks to tighten regulations and rein in the excessive run-up in asset prices. Some central banks have implemented capital controls to thwart the speculative inflows. In our opinion, most central banks will start to signal a shift and rein in the excessive run-up in asset prices. Some central banks have implemented capital controls to thwart the speculative inflows. In our opinion, most central banks will start to signal a shift to monetary tightening no earlier than 2H 2010.
Bolstered by strengtening economic growth prospects and a growth differential which is in Asia's favour, regional currencies will climb back on an appreciation path for the greater part of 2010. That said, regional central banks' fear of the impact of stronger currencies on export competitiveness is likely to limit the magnitude of the appreciation.
Include (i) a weaker-than-expected recovery in the developed countries;
(ii) new asset bubbles;
(iii) mistiming of economic stimulus withdrawal or premature monetary tightening, and
(iv) a slower-than-expected pick-up in private sector demand.
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