HONG KONG (The Nation/ANN) - Ben Bernanke, former chairman of the US
Federal Reserve, says China’s economic slowdown is unlikely to be severe and
disrupt the global economy.
Ben Bernanke, former chairman of the US Federal Reserve, told the Asian Financial
Forum (AFF) in Hong Kong that China’s economic slowdown is unlikely to be severe
and disrupt the global economy.
Speaking at a keynote luncheon, Bernanke, who ran the Fed from 2006-2014, said
China, the world’s second largest economy with GDP of around US$10 trillion, is
transitioning from an export-led, investment-driven economy to a consumption-led
and services economy so it is natural that this will bring down its GDP growth rate.
China’s GDP is projected to grow 6.7 per cent this year, down from last year’s 6.9 per
cent growth rate as policymakers steer the economy into new stages after recording
high growth rates for the past three decades.
The World Bank earlier cited China’s slowdown as a factor for revising downward its
global economic growth forecast for 2016 to 2.9 per cent from more than 3 per cent.
For the Thai economy, the China factor, oil price collapse and the next round of US
interest rate hikes are among key factors affecting this year’s growth rate which is
projected to be around 3-3.5 per cent, compared to last year’s 2.8 per cent.
On the outlook of oil prices which have dropped to US$30 per barrel, Bernanke said
the big change is that the bargaining power has shifted from oil-producing countries
to buyers as supplies become more abundant.
He said Iran had come back to the world oil market while the US became an oil
producer so these factors are holding down crude oil prices due to a supply boost.
Overall, this is positive for the global economy and there are clear benefits for major
economies, he added.
On the US interest rate outlook, he said, a stronger US economic performance will
prompt the US Fed to raise its rate more quickly. This will lead to a stronger US
dollar, but there will be a positive offsetting effect, namely, more exports to the US
market.
According to Bernanke, the US Fed was expected to raise its rate in September 2014,
but the move was probably delayed by global uncertainties so in hindsight such a
caution was appropriate in his opinion.
On the issue of so-called “secular stagnation” as raised by former US treasury
secretary Lawrence Summer, he said, low productivity and population growth rates
in developed and emerging economies such as the US and China are a cause of
concern so structural reform and other policies are required to address the issues
since monetary policy is not a cure-all measure.
To maintain a reasonable growth rate of the Chinese economy, he said, China may
not need a high savings rate, which is around 30 per cent of its GDP compared to the
US’s saving ratio of 5 per cent, but should use the savings to boost household
spending and domestic consumption to drive GDP growth.
Concerning his legacy as Fed chairman, Bernanke said in hindsight he is not sure if
he would have done it differently, given the magnitude of the US financial crisis back
in 2008-2009.
While monetary policy and quantitative easing were not perfect tools, they were the
only option to save the US economy at the time, according to Bernanke.
The former Fed chairman also talked about the role of US dollar in the global
economy during his luncheon keynote speech moderated by Andrew Sheng of the
Asia Global Institute, University of Hong Kong, and also a columnist for Asia News
Network.
Bernanke said the Special Drawing Rights as issued by the International Monetary
Fund are unlikely to replace the US dollar as the global currency because there is
simply no infrastructure to support its role as the global unit.
However, markets may move to use other international currencies, he noted.
A version of this article appeared in Asia News Network, 19 January 2016
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