Morgan Stanley’s Global Economics research team has a fascinating new note out looking ahead at 2014 titled
Five Key Transitions.
In it, they identify five big themes that characterise what the regions of the globe are going through right now:
1. US: From QE to credible forward guidance on interest rates.
2. Japan: From deflation to (moderate) inflation.
3. Europe: From financial fragmentation to a credible banking union.
4. China: From leverage-driven growth to reform-driven growth.
5. EM: From broken traditional to sustainable new growth models.
As they see it, the more these transitions are accomplished in 2014, the more likely we’ll see robust global growth.
Some of these things aren’t new or 2014-specific. For example, they’ve been talking about China changing its growth model forever. Same for the rest of emerging markets. And Japan has been trying to get out of its deflation trap for years. It’s unlikely that all of this is going to come together in a meaningful way soon or at the same time. Yet these themes do provide a nice framework for thinking about the world, and who has what challenges.
As for the US, transitioning from QE-based easing to forward guidance on interest rates is intriguing for monetary policy wonks, but is unlikely to be a huge gamechanger, the way the other transitions would be for the other regions. To some extent, that underscores the lack of concern for anything big or threatening happening in the US right now.
Europe has come a long way since the darkest days of the crisis, but its prospects will be stunted if leaders there think the work is done.
Morgan Stanley’s transitions fit into a bigger theme for 2014 in that the year is expected to be characterised by idiosyncratic growth stories, rather than the end of the crisis (Nomura declared it the “end of the end of the world.”).
We’re past the point of the world being in a big, rolling global crisis. Now everyone has their own stuff to deal with again.
As for what it all means for global growth, Morgan Stanley writes:
Successful transitions imply better growth: Our base case is that these transitions, while tricky, tough and testing, will be accomplished eventually. If so, we expect global GDP growth to accelerate from just below 3%Y in 2013 to around 3.5%Y in 2014 and into the 3.5-4%Y range in the following years.