As the euro and the yen are depreciating, rendering the US less competitive in international trade, America must apply a brand new approach to economic policies to spur economic expansion and successfully competed with Europe and Japan.
A currently wide-scale monetary stimulus in Japan and only a promise to launch a massive bond-buying program in the Eurozone, coupled with the outstanding performance of industrial manufacturers in both economies, might be an early indication that Brussels and Tokyo have finally found their way out of the deflation trap, holding them down for many years, Sputnik reported.
Meanwhile, in the US, inflation is slowing, as Fed chair Janet Yellen reported recently, threatening growth prospects and preventing monetary authorities from further tightening their monetary policy. America, nevertheless, remains a bright spot of the global economy, but a strengthening competition from Europe and Japan might undermine US consumer spending soon, taking a heavy toll on the private sector-generated component of America’s growth.
Unconventional Monetary Policies
The European Central Bank (ECB) and Bank of Japan (BoJ) reported that deflation, haunting their respective economies, might soon be left behind as unconventional monetary policies, undertaken during the past years by both regulators, have proven more successful than expected.
Vitor Constancio, the ECB vice president, in his speech at the monetary policy convention in New York, stressed that a mere promise to launch a full-scale bond-buying, similar to the policies applied by the US in 2008-2014 and, more recently, in Japan, have effectively spurred the previously low inflation towards a target of 2 percent, which is more appropriate in a healthy economy.
The euro has been depreciating against other major currencies with its current FX rate of $1.1196. For comparison’s sake, in early May 2014 the euro was worth nearly $1.4, closer to its 10-year average.
Inflation Falls
This January inflation in the Eurozone fell to the unprecedented — 0.6 percent, meaning the prices are falling. The ECB inflation target is 1.8 percent. Even with the actual deflation, economy of the Eurozone expanded by 0.2 percent in Q3, and by 0.3 percent in Q4, driven by surpluses in foreign trade and a rally in industrial development.
“There is indeed some recovery going on (in the Eurozone),” Constancio said. As it strengthens, “that will put upward pressure on inflation.”
Constancio’s Japanese counterpart, Hiroshi Nakaso, speaking at the same conference, said the Japanese economy is growing at an accelerated pace thanks to the bond-buying (currently worth 80t). In Japan, inflation reached 2.2 percent in January, while economic growth of 0.6% in Q4 is weaker than might have been. However, real salaries are increasing as labor market is tight and private sector enterprises have posted solid earnings, fueling expectations of growth accelerating soon.
US Declining
But today tides may turn, as US Treasuries are appreciating again as inflation is dipping. Most of US economic growth is driven by governmental spending, and while manufacturing, financials and energy sectors are feeling alright, consumer confidence is falling because of the expectations that prices either will not grow soon or even will be declining.
Fed chair Janet Yellen told the Congress this week no further tightening should be expected in the short-term as economic growth is not sustainable enough. Businesses say that a stronger dollar has triggered a significant depreciation of imported goods, and the shale oil boom rendered fuels and utilities much cheaper.
Now, Washington is facing a new challenge – the Eurozone and Japan, its main competitors and rivals, are printing money, holding their currencies down and increasing volumes of exports in hi-tech and manufactured goods, while the US is tightening monetary policies. As a result, a stronger dollar and the oversupply of goods and raw materials in the domestic market, hurt businesses, as it is unprofitable to sell goods abroad, and tight competition in the domestic market decimates prices. The US badly needs new opportunities in their foreign trade, otherwise the rebound in Europe and Japan will hurt America’s businesses.
