1. The Global Economy: The New “New-Normal” by SEBASTIAN EDWARDS Henry Ford II Distinguished Professor of International Economics, UCLA Círculo de Economía, Sitges, May 2014

2. The end of four cycles n China’s super growth cycle n The U.S. super borrowing cycle n The monetary expansion cycle n The Euro Zone crisis cycle

3. 1. The end of China’s Super Growth Cycle

6. China’s spectacular trip

7. Reduced external surplus in China…

8. China’s NIIP

10. Currency appreciation will slow down significantly, and maybe reverse (except for Balassa-Samuelson effect)

11. Commodity Prices and China

12. SoybeansCopper GoldWheat Brent oil Natural gas

13. Also will affect China’s foreign investment strategy n More selective, more parsimonious. n Demand for Treasuries will decline; this will contribute to steeper yield curve in US n Will concentrate on two areas: –Selected companies in key industries in advanced countries, such as the pork meat provider (Smithfileld) in Virginia. –Natural resources (mostly metals) in Africa and some LATAM countries.

14. 2. The end of the U.S. Super Borrowing Cycle

15. Current account deficit

16. USD RER

17. NIIP in USA

18. USD RER 1 2 3 45

19. Public sector deficit in US

20. Debt to GDP in US

21. Implications n Stronger USD. n A higher and flatter yield curve. n Faster growth in United States. n An open question is what will happen to property prices. New bubble? –Market specific; location will matter

22. 3. The end of the Super Expansive Monetary Cycle: Will it Happen? Should it Happen?

23. The players

24. The problem is this: n Bringing the cycle to an end makes (some) sense in U.S. Is it happening? n But it is clearly premature in Euro Zone (in spite of whatever the German’s may say) n And it is very premature in Japan (in spite of whatever Abe opponents may say) n And yet, we are likely to see (some) synchronicity across these three key players. n In Japan the money slowdown plus the new consumption tax could be very negative.

25. Liquidity in the United States

26. Yield Curve in the U.S.

28. US Inflation Rate

29. Inflationary expectations in U.S.

30. A Taylor Rule for the New New-Normal? n

31. Euro Zone Monetary Conditions

32. Euro Zone Monetary Base

34. Deflation in the Euro Zone?

35. Abenomics and Japan 10year bond yield

36. 4. The end of the Crisis Cycle in the Euro Zone

37. Euro Zone Interest Rates: Germany, Ireland and Spain

38. The fear of massive default and restructuring has disappeared

39. The problem is this: n The reforms have stalled and are unlikely to move forward at the required pace; moreover, they will not be as deep as they are needed n This is true both for the Euro Zone – and the EU, for that matter -- as a whole, and for individual countries. n Unfinished business: unified fiscal policy, unified banking supervision, labor mobility and flexibility, European Constitution, among others.

40. Spain I

41. Spain II

42. Unemployment: A tale of two countries

43. Spain III

44. Spain IV

45. The reforms and competitiveness n Doing Business Ratings –Spain 2007 = 39 –Spain 2014 = 52 –Germany 2007 = 21 –Germany 2014= 21

46. Euro Zone inherent instability n The Euro Zone will continue to be structurally unstable n Germany will have the advantage of a undervalued currency (“currency manipulator”?) n The periphery will face the disadvantage of a permanently “overvalued currency”

47. The Euro RER

48. Some implications of the “End of Four Cycles”

49. This picture will have a negative effect on: n Countries with high current account deficits n Nations with high public sector debts n Countries with high foreign currency indebtness n Countries with large GEFR n Countries with overextended construction sectors

50. They will have higher rates, larger primary deficits, and more depreciated currencies:

51. Currency questions in advanced nations Yen Euro

52. The good and the bad… n Negative watch list: –Brazil, –Japan, –EU Mediterranean periphery, –Indonesia –Colombia –Turkey –Egypt –Malaysia –South Africa n Positive watch list: –USA –Germany –Switzerland –Mexico –China –Indonesia –Ireland –Australia –New Zealand

53. A final word on political risks

54. Crimea as a warning sign?

55. Is Piketty the new Marx?