Key words for 2013 global economy
The world is about to bid farewell to 2013, a year in which the global economic situation has experienced highs and lows. Here we summarize the major events which have affected international markets, and the key words which have attracted the attention of global investors in 2013.
This year, the global economy has continued a moderate recovery trend from 2012. Growth in developing economies has slowed, but as a whole it is still much faster than in the developed countries.
The IMF forecasted that the growth of the world economy in 2013 would be 2.9 percent, compared with 3.2 percent in 2012. Overall growth in emerging and developing economies fell to 4.5 percent from 4.9 percent, and in the advanced economies dropped from 1.5 percent to 1.2 percent.
U.S. economic growth declined from 2.8 percent to 1.6 percent; the euro zone economy continued to shrink, down slightly from 0.6 percent to 0.4 percent; Japan maintained a 2 percent growth rate.
After six months spent preparing the ground, the Fed finally announced on December 18 that there will be a slight reduction in QE (quantitative easing) from January 2014.
This means that the Fed will continue to inject money into the economy, at a slightly slower pace. But the vulnerable emerging markets might be exposed to pressure again due to the appreciation of the U.S. dollar and markets once more coming under pressure.
There was a general expectation that the Fed would exit QE at the end of August 2013, which accelerated the withdrawal of funds from emerging markets. As a result, the exchange rates of the Indian Rupee and the Indonesian Rupiah fell sharply and their stock markets plummeted.
WTO and TTP
On December 7, after tough negotiations and mediation, the World Trade Organization (WTO) finally reached the first major agreement since its founding in 1995 at the Ministerial Conference in Bali, Indonesia.
Analysts believe that the "Bali package of agreements," although exciting, amounts to no more than a severely diminished version of the WTO Doha Round agreement. It is still a long way from the completion of the Doha Round.
This suggests the influence of the WTO is weakening.
As a result of the vigorous lobbying of the Unites States, there has been progress with both the Trans-Pacific Strategic Economic Partnership Agreement (TPP) and the Transatlantic Trade and Investment Partnership (TTIP), launched in early 2013.
Japan and South Korea announced the decision to join the TPP negotiations in March and October respectively. Although the U.S. budget impasse and difficult negotiations with Japan slowed down the process of TPP negotiations, observers believe that the negotiations will wrap up in early 2014. In addition, Europe and the United States have launched three rounds of TTIP negotiations this year.
Differences in monetary policy
Because of the lack of effective internal demand and the relative stability of prices in international commodities, inflation in the United States and the euro area remained within the target range of 2 percent. Prices in Japan stopped falling, but any rises were limited.
Following Japan’s implementation of aggressive quantitative easing to hold down credit interest rates in April, the European Central Bank (ECB) announced a surprise rate cut in early November. The Fed also said that even after exiting QE, it will maintain benchmark interest rates close to zero in the long term.
In contrast, inflation rates in emerging economies remained high. Despite the overall downturn in international commodity prices, but impacted by factors such as structural problems and the currency devaluation, consumer price increases in Brazil and Russia fluctuated at a high level between six and seven percent.
India’s CPI saw a double-digit rate increase that continued for eight consecutive months. To prevent inflation, central banks in some emerging economies continued to raise interest rates, but the measure was largely ineffective.
The U.S. government shutdown
Following the tug of war over avoiding the "fiscal cliff" in early 2013, the bi-party budget and debt ceiling deadlock led to the U.S. government shutdown in October, increasing risk of debt default.
After a 16-day federal government shutdown, the two parties reached a compromise on the fiscal impasse. But the program has not bridged the fundamental differences between the two parties on the issue of deficit reduction. It only maintained government services and postponed resolution of the debt ceiling to January 15 and February 7 2014 respectively.
Analysts believe that future negotiations between the parties might remain deadlocked, leaving the risk of a debt default and a government shutdown early next year.
The consequent uncertainty will once more impact market confidence and the U.S. economic outlook.
When Japan's new prime minister Shinzo Abe took office, he put forward three strategic measures in economic policy to revive Japan’s economy. These are expansion of government spending to stimulate economic growth, implementation of positive monetary policy, and regulatory reform-dominated growth strategy. The aim is to control deflation which has been a major contributor to a long-term downturn. The measures have been termed 'Abenomics'.
In the first half of the year, driven by Abenomics, the Japanese economy saw high growth. The annualized GDP growth in the first two quarters was 4.1 percent and 3.8 percent respectively.
However, under the Abe fiscal stimulus, Japanese government debt in 2013 exceeded 1000 trillion yen, representing nearly 250 percent of GDP and ranking highest in the developed countries.
Furthermore, because the growth strategy of the third measure struggles to impact on deep-seated structural problems, there have been suggestions that Abeonomics are economic stimulus policies more in name than in reality.
In addition, whether Abe can handle the relationship between Japan and its Asian neighbors will be one of the main factors affecting the Japanese economy. If Japan's relations with China and South Korea remain taut, and mutual economic and trade relations deteriorate due to cooling political relationships, Japan's economic growth will be affected to some extent.
Bitcoin is a virtual currency which is not supplied by a central bank. People obtain it by using a computer program to run a specific algorithm, commonly known as "mining". Bitcoins are regarded by many fans as electronic gold.
The value of the Bitcoin has appreciated nearly 100-fold this year. The price is vulnerable to manipulation by producers. In the course of a day it can just as easily rise by a factor of several times, or fall by half.
Due to the huge risks involved in investment, financial regulators from the Chinese mainland, Hong Kong, South Korea, and Europe all issued announcements towards the end of 2012, warning Bitcoin investors. Due to the tightening regulatory regime on the Chinese mainland, bitcoin prices halved in a matter of days.
Gold price falls sharply
Since early 2013, impacted by an expectation of a tightening in the supply of dollars, gold has gone through several rounds of significant price shocks, and an overall downward trend.
Close to the end of the year, the international gold price fell below 1,200 U.S. dollars an ounce, a new three-year low. It is also at its lowest year-end closing price since 2000.
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