Bernanke soothes concerns over China
Ben Bernanke, former chairman of the US Federal Reserve, told the Asian Financial Forum in Hong Kong yesterday that China’s economic turbulence would not whiplash the global economy.
Bernanke, who ran the Fed from 2006-14, was speaking at a special luncheon talk moderated by economist and Asia News Network columnist Andrew Sheng. He said China was transitioning from an export-led, investment-driven economy to a consumption-led, services-based economy, so it was natural that the economy was running a little sluggishly.
China’s gross domestic product – the second-largest at US$10 trillion - is projected to grow by 6.7 per cent this year, down from 6.9 per cent last year, as policymakers navigate the economy to new stages after recording high growth rates for the past three decades.
The World Bank has cited China’s slowdown as a factor for revising its global economic-growth forecast for 2016 to 2.9 per cent from more than 3 per cent.
For the Thai economy, the China factor, the collapse of oil prices and next round of US interest-rate increases are among key factors dictating this year’s growth, which is projected at 3-3.5 per cent, up from 2.8 per cent seen last year.
On the outlook for oil prices, which have dropped to $30 per barrel, the big change is that bargaining power has shifted from oil-producing countries to buyers as supplies become more abundant.
Iran has returned to the oil market, while the United States has become an oil producer, so these developments are holding down crude-oil prices because of a supply boost.
Postive for world economy
This is positive for the global economy and there are clear benefits for major economies, Bernanke said.
On the US interest-rate outlook, a stronger US economic performance will prompt the Fed to raise its rate more quickly.
This will lead to a stronger US dollar, but the upside is that there will be more exports to the US market.
The Fed was expected to raise its rate in September 2014, but the move was probably delayed by global uncertainties, so in hindsight such caution was appropriate, he said.
On the issue of "secular stagnation" as raised by former US treasury secretary Lawrence Summer, low productivity and population growth rates in developed economies such as the US and emerging ones such as China are a cause of concern, Bernanke said.
Structural reform and other policies are required to address the issues, since monetary policy is not a cure-all.
To maintain reasonable growth of its economy, China may not need a high savings rate – which is around 30 per cent of GDP, compared with the United States’ 5 per cent – but should use savings to boost household spending and domestic consumption to drive GDP, he said.
Concerning his legacy as Fed chairman, he is not sure if he would have done things differently, given the magnitude of the US financial crisis back in 2008-09. While monetary policy and quantitative easing were not perfect tools, they were the only option to save the US economy at the time.
As for the role of the US dollar in the global economy, the Special Drawing Rights of the International Monetary Fund are unlikely to replace it because there is simply no infrastructure to support its role as the global unit.
However, markets may move to using other international currencies, he said.
