What is trending in the global economy this year?
The first quarter of 2015 has seen various topics rise to prominence in the worlds economy. The recently concluded World Economic Forum, Davos 2015 that took place from the 21-24 of January, has spurred many of these topics.
Some of the hot topics in the worlds economy today are listed below.
Recent times have seen countries use their currencies more as a tool to stimulate growth. Where there have been low interest rates and financial constraints, the sole policy tool that countries find available is to weaken the exchange rate in order to stimulate growth. However, arguments have been on whether such currency manipulations actually are beneficial or detrimental to the worlds economy. In arguing on its benefits, it has been pointed out, by attempting to weaken their currencies, the central banks cut down on real interest rates. The reductions on interest rates then serve as a stimulant for investment.
Problems with currency manipulation
Contrary opinions have been that high currency manipulations would limit cross border transactions. Many companies are more likely to prefer to place more emphasis on their home than on exports due to the volatility of the currency market. This will in turn lead to sluggish growth in the global financial market. Again, foreign direct investment is likely to reduce, as countries with a deficit on their current account will find it difficult and more expensive to raise finance. This debate has made currency manipulation one of the hot topics in the worlds economy this year.
Regional Trade Deals v Global Trade Agreements
As tension mounts as to whether an agreement amongst Pacific Countries and the American-European pact can actually take place, other questions have arisen. The most important of these questions has been whether Regional Trade agreements further destabilize global trade or rather open up the world to freer trade. This has made the debate on regional trade against global trade on of the hot topics in the worlds economy.
Whilst the classic economic theory is that free trade boosts economic growth as countries can then focus on where their strengths lie. However regional trade agreements have been attributed to trade diversion, preventing countries that have cheaper products from having access to the market. However, arguments have risen that the changing face of Regional Trade Agreements has positively had an influence on the global market. Only about 16% of trade agreements in 2008 were subject to any preferential agreements. Countries have also slashed tariffs globally. Rather focus has been on more intricate regulatory issues such as those involving the inflow of capital and policies on competition.
Irrespective of these, the debate on what is currently one of the hot topics in the worlds economy rages on. With more regional trade deals likely to come over the next few years, observers are watching.