2014 economic outlook

Global event -    USA recovering,
                           Europe crisis under control
                           Federal Reserve QE tapering
Regional event - Japanese VAT increase in April
                           Chinese are tightening their shadow banking and excessive liquidity
                           Regional asset bubble.


USA debate on debt ceiling again. Market are too tried to react on it. However, Japanese increase their VAT could be the most important event in 2014 H1. Japanese government plan to increase their borrowing by issuing more bond. However, their income is barely enough to pay for bond interest. Increase VAT may provide needy cash for interest payment and reduce public debt in long run

However,Japan’s VAT rate increase in 1997:Q2 from 3 percent to 5 percent is often cited as the main reason Japan fell back into recession in late 1997.

 

VAT increase also have impact on Japanese GDP (estimate -1% GDP). Japanese grow will be slowed down. And further impact on investors.

 

In August 2014, QE will be totally stopped. Asia and emerging market excessive liquidity will dry up. And investors were expecting interest rate will go up in 2015.

Investment climate will always under low pressure in 2014. However, 2014 could be best time to buy for longer term investors.