Economic Expectations and Projections: 2013

It was almost four years back that the world fell into the trap of one more economic recession later on supposed to happen basically due to the sub-prime mortgage loan said to originate from the global economic power USA. The tragic part is that even with so many of economic measures, the world is still not being able to revive and in 2012, the economic growth throughout the world has further debilitated as many of the developed economies fell into a double-dip recession. More of the developing and least-developed economies have suffered as their rate of poverty reduction has gone slow; their investments in education, health and other critical areas have gone down in the pressure time of MDG deadline. LDCs have further suffered due to high market volatility and less ODA (Official Development Assistance) due to economic imbalance of the donor countries. The WGP (World Gross Product) is expected to remain at 2.4 percent in 2013 which still shows many economies running below potential.

Looking into the major monetary policies across the world, the Fed is expected to keep the interest rates at low level between 0.00 and 0.25 percent up to mid-2015 and will probably purchase the agency mortgage-backed securities amounting $40 billion per month up to the end of 2014. The ECB is likely to cut the minimum bid and marginal lending facility rates by another 25 basis points and will probably execute the OMT (Outright Monetary Transactions), where the government bonds of Spain and selected EU areas will be purchased. The BoJ will probably keep its policy interest rate between 0.0 and 0.1 percent and implement APP (Asset Purchase Program) using the announced ceiling of ¥91 trillion. The PBC is likely to reduce the reserve requirement rates twice in the upcoming year and decrease the interest rates once more.

The developed economies have fallen to low-growth trap due to major four reasons: High unemployment, Deleveraging by firms & households, financial fragility and Fiscal Austerity and Sovereign debt risk. The major steps taken: Fed Quantitative Easing, OMT by ECB, Continued EU austerity and Debt dynamics. These efforts seemed necessary but remained insufficient therefore the sufficiency element is expected to appear this year.

Coming to the expectations of the LDCs in 2013, the economies are expected to rebound. The rebound is expected maximum in the oil-exporter LDCs like Angola and Guinea. The yearly seasonal forecasts are good in 2013 thus making it encouraging for the agro-dominated country like ours. Regarding the sustained inflow of worker remittances, Bangladesh is top in the chart with an increment of about 20 percent in recent times. The ToT (Terms of Trade) is falling; therefore political consensus should be prime concern in Nepal.


Note: This article was published in The Himalayan Times Perspectives