Sustained Global Economic Expansion Expected Despite China Concerns and Emerging Market Turmoil, Says BNY Mellon's Richard Hoey

NEW YORK and LONDON, Feb. 28, 2014 /PRNewswire/ -- Despite recent concerns about financial risks in China and stresses in some other emerging countries, stronger global economic growth is expected in 2014, according to BNY Mellon Chief Economist Richard Hoey in his most recent Economic Update.  Global GDP growth should accelerate by one-half to three-quarters of one percent faster than in 2012 and 2013.  For the U.S., Hoey continues to expect three years of 3% growth in 2014, 2015 and 2016.

"We believe that the Chinese government has the financial strength to absorb a substantial portion of the legacy bad debts over a period of years and to tolerate a gradual recognition of legacy bad debts in the private sector over an extended period of time.  The result should be an orderly deceleration of Chinese economic growth," Hoey says.  Hoey expects about 7.5% real GDP growth in China this year. 

"After running current account surpluses for many years, the external balance sheet of China is quite strong," Hoey continues. "It is a net international creditor, not a net international debtor.  Chinese debt is largely owed to domestic Chinese lenders in an economy with a very high savings rate.  The government of China has the power to decide who will absorb the losses from bad debts in vulnerable portions of the Chinese financial system and when that will occur."

Hoey discusses that many emerging countries are sensitive to the Chinese business cycle, which has had a different pattern than the developed country business cycle.  According to Hoey, "The Chinese business cycle is out of step with the developed economy business cycle due largely to the hangover from the credit boom engineered by China after the global recession to mitigate the spillover to China from the global recession."

Other Economic Update findings include:

WELL-BEHAVED PATTERN FOR OIL PRICES AND OTHER ENERGY PRICES – Because spending on energy is such a large portion of global spending, Hoey believes that energy prices are also "causal" for economic growth.  Weak or roughly flat world energy prices, especially when they are due to strong supply growth more than to cyclical weakness in demand, can help support global economic expansion. 

MONETARY POLICY EXPECTATIONS IN MAJOR COUNTRIES ARE UNCHANGED – Hoey expects that quantitative easing will continue to be tapered at $10 billion per meeting, with a high "hurdle" for any decision to pause the taper.  Hoey expects that short-term interest rates should start to rise in the second half of 2015 and additional easing from the Bank of Japan is likely to be needed later this year.  Hoey also expects a slight easing move from the ECB soon. 

U.S. IN MILD INVENTORY SLOWDOWN – Hoey believes that there are two different kinds of inventory adjustment.  One occurs when final demand drops sharply and businesses are slow to adjust production, generating substantial cyclical weakness.  A milder version is when the pace of inventory accumulation surges powerfully and then slows to a more sustainable pace.  Hoey believes that the U.S. economy is undergoing the latter, milder inventory slowdown. 

"While the fourth quarter 2013 real GDP growth should be revised downward and the first quarter 2014 growth rate may be weak, we continue to expect real GDP growth in the U.S. of about 3% in 2014, continuing at roughly the same pace in 2015 and 2016," Hoey concludes.

See http://www.bnymellon.com/foresight/pdf/update.pdf  for Hoey's complete Economic Outlook.    

Notes to Editors:

BNY Mellon Investment Management is one of the world's leading investment management organizations and one of the top U.S. wealth managers, with $1.6 trillion in assets under management. It encompasses BNY Mellon's affiliated investment management firms, wealth management services and global distribution companies. More information can be found at www.bnymellon.com.

BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of December 31, 2013, BNY Mellon had $27.6 trillion in assets under custody and/or administration, and $1.6 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com, or follow us on Twitter @BNYMellon.

All information source BNY Mellon as of Dec. 31, 2013. This press release is qualified for issuance in the UK, Europe and US and is for information purposes only. It does not constitute an offer or solicitation of securities or investment services or an endorsement thereof in any jurisdiction or in any circumstance in which such offer or solicitation is unlawful or not authorized. Any views and opinions contained in this document are those of the author as at the date of issue; are subject to change and should not be taken as investment advice. BNY Mellon Investment Management EMEA Limited and its affiliates are not responsible for any subsequent investment advice given based on the information supplied. This press release is issued by BNY Mellon Investment Management (US) and BNY Mellon Investment management EMEA Limited (ex-US) to members of the financial press and media and the information contained herein should not be construed as investment advice.  Past performance is not a guide to future performance.  The value of investments and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements.  When you sell your investment you may get back less than you originally invested. Registered office of BNY Mellon Investment Management EMEA Limited: BNY Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Registered in England no. 1118580. Authorized and regulated by the Financial Conduct Authority. A BNY Mellon Company. 

SOURCE BNY Mellon

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