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Hoey: Sustained Global Economic Expansion Expected Despite China Concerns and Emerging Market Turmoil

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Hoey: Sustained Global Economic Expansion Expected Despite China Concerns and Emerging Market Turmoil

Orderly Deceleration of Chinese Economic Growth Anticipated; U.S. GDP Growth at 3% in 2014, 2015 and 2016.

Despite recent concerns about financial risks in China and stresses in some other emerging countries, stronger global economic growth is expected in 2014, according to BNY Mellon Chief Economist Richard Hoey in his most recent Economic Update. 

Global GDP growth should accelerate by one-half to three-quarters of one percent faster than in 2012 and 2013.  For the U.S., Hoey continues to expect three years of 3% growth in 2014, 2015 and 2016.

"Hoey expects about 7.5% real GDP growth in China this year."

"We believe that the Chinese government has the financial strength to absorb a substantial portion of the legacy bad debts over a period of years and to tolerate a gradual recognition of legacy bad debts in the private sector over an extended period of time.  The result should be an orderly deceleration of Chinese economic growth," Hoey says.  Hoey expects about 7.5% real GDP growth in China this year. 

"After running current account surpluses for many years, the external balance sheet of China is quite strong," Hoey continues. "It is a net international creditor, not a net international debtor.  Chinese debt is largely owed to domestic Chinese lenders in an economy with a very high savings rate.  The government of China has the power to decide who will absorb the losses from bad debts in vulnerable portions of the Chinese financial system and when that will occur."

Hoey discusses that many emerging countries are sensitive to the Chinese business cycle, which has had a different pattern than the developed country business cycle.  According to Hoey, "The Chinese business cycle is out of step with the developed economy business cycle due largely to the hangover from the credit boom engineered by China after the global recession to mitigate the spillover to China from the global recession."

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