A world awash with cheap money! Latest forecast from Economist Intelligence Unit

EIU chief economist, Robin Bew says: “Central banks are responding en masse to sluggish demand. Recent weeks have seen a wave of interest-rate cuts from the euro zone to South Korea to Australia. Add these measures to ultra-loose monetary policy in the US, Japan and the UK, and the global financial system is awash with liquidity. My analysts and I are following these trends closely, and our latest monthly forecast for the global economy looks in detail at monetary policy developments and their implications for growth. Abundant liquidity has done little so far to boost global demand, but the US economy is holding up relatively well and we expect a pick-up in momentum both there and in other major economies later in 2013.” In a press statement, EIU says:  Policy is also playing a role in the global recovery. Financial tensions in the euro zone have eased tremendously in recent months following a pledge by the European Central Bank (ECB) of unlimited intervention in sovereign bond markets. The new scheme has yet to be used in anger, but its mere existence has worked wonders. The ECB also cut interest rates in early May, a move widely emulated elsewhere. Central banks in South Korea, Australia, Poland, India and Denmark have lowered interest rates recently, and cuts are likely in various other countries. At the same time, quantitative easing (QE) in the US, Japan and the UK has had a dramatic impact on policy thinking and investor behaviour, boosting asset prices. Yet abundant liquidity has done relatively little so far to improve global growth. Weak banks, entrenched unemployment and high levels of indebtedness have disrupted monetary policy transmission. But the situation is improving. Borrowing is rising in some countries, banks are repairing their balance sheets, and companies are taking advantage of historically low interest rates to raise record amounts of cash. As central bank liquidity supports these and other post-crisis adjustments, economic growth should begin to rise. We expect global GDP growth of 2.8% at market exchange rates (and 3.8% at PPP rates) in 2014 (Source).


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