According to Ravi Menon, managing director of Monetary Authority of Singapore, if global financial conditions tighten, emerging Asia today will be better able to cope with the challenge. The challenge of balancing growth and stability will be more serious for China and emerging Asia but it will be strong enough to control the turbulence even if there are weaknesses in the balance sheets of the household, corporate and banking sectors.
Speaking in UBS’s Wealth Insight 2017 conference, Menon has expressed hope that the Trump administration will not put forward extreme anti-trade measures. He said that if US restricts trade with Mexico and China, it will provoke “cascading effects” throughout Asia’s integrated production networks. Bilateral imbalances, exchange rates, restrictions and tariffs are not limited to the two countries because the global supply chain is extremely complex.
However, Menon said that there is still a lot of uncertainty over new trade policies. There is strong sentiment that the US establishment has always been benefitted from trade and if there are extreme trade measures, it might cause more harm than good for all those who are involved. For example, the potential of impact of the 3 – 4 rate hikes this year by the US Federal Reserve will be based on how much is already priced in through the currency rates.
However, policy makers should stay calm and learn how to absorb changes and lean against it if absolutely necessary in order to moderate and dampen any excessive swings in the foreign exchange markets. Global economy needs more investments whether public or private to improve the economy’s productive capabilities instead of a quick-fix stimulus.
In his speech, Menon also highlighted four of the key drivers for the global economic outlook that includes fiscal policy, monetary divergence and tighter global financial conditions, the challenge of balancing growth and stability and the rise of protectionism.
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