Last week we discussed some key events scheduled for the fall, with a focus on the U.S. and Europe. This week we turn to where the real action may take place — Asia. In particular, we focus on Japan, China and India, which together comprise nearly a quarter of the total global economy.
The most spectacular in terms of sheer radical change and development is Japan. Japan is a global macroeconomics experiment in action, and this fall Prime Minister Shinzō Abe will tackle what is supposed to be the "third arrow" of his recovery program. The first arrow was greater fiscal stimulus and the second being the unprecedented monetary expansion program in place by the Bank of Japan. The third arrow is reform of the consumption tax, which would result in higher taxes in 2014 and 2015, meant to narrow their large fiscal deficit.
Much has been written on the slowing pace of the Chinese economy, and the data this year has fluctuated on that. This week actually saw some positive trade data released that offset some of the negative news from the past few months. The thing to watch for though is whether the new government installed earlier this year will actively support an 8 percent growth rate, which heretofore had been the dividing line between success and failure as deemed by the markets. In some cases this year the government focused on reform rather than just supporting economic activity. It could be argued that the government seems resolute on not employing a parachute for the struggling economy, but rather putting in place a trampoline to allow this economy to bounce after hitting the mat.
Finally, next month India installs a new central bank governor. Raghuram Rajan leaves a relatively comfortable life at the University of Chicago to head up the Reserve Bank of India. Rajan is famous in the financial community for predicting the 2008 financial crisis when he was chief economist at the IMF, and now must tackle a struggling economy that has hit the skids as foreign investment into all emerging markets has reversed.
The success or failure of the 2013 global economy is more an Asian question than an Anglo/European one. We will be focusing on these developments in the weeks to come. It will be a very interesting autumn, but we look forward to keeping you informed as it unfolds.
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