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The world economy: The trough may be in the fourth quarter of this year and the first quarter of next year Chen Fengying, director of the Institute of World Economy, China Institute of Contemporary International Relations, next year:
The global economy is cyclical. At present, the long-wave of the world economy is an expansion period, while Zhongbo is in a contraction period, and short-wave is also in a contraction period. The border between this year and next year may be a low point of the world economy, and the bottom is flat. Overall, the world economic situation shows a relatively strong consolidation.
The global economy is cyclical, with peaks and troughs. From the last oil crisis, the first crisis of 1973, the world economy has entered a low point. From the long-wave theory, the 1980s and 1990s were long-wave systolic periods. After the 21st century, from the long wave theory, the world economy has entered a period of high growth. A recent report from the Industrial and Commercial Bank of China (ICC) is close to my own view. It also means that the world economy will have a high growth rate and it will be an expansion period in the long wave.
The long-wave cycle is fluctuating with high and low fluctuations, because there are medium-wave and short-wave. The medium-wave period of medium-wave theory is generally 8-10 years, and the short-wave period of short-wave theory is generally 3-5 years. The current medium-wave view is a systolic period. 2001 is a bottom, and it is very likely that the next year will be a bottom. It seems that this medium-wave is about 8 years, not to 10 years. At present, the long-wave of the world economy is an expansion period, while Zhongbo is in a contraction period, and short-wave is also in a contraction period.
The collapse of the US network bubble in 2001 caused a low growth in the world economy. According to the IMF data, the long-term low-growth result was that in 2001, the world economic growth rate was 2.2%, and in 2002 it recovered to 2.7%, then 2003, 2004, 2005, In the past few years of 2006 and 2007, the world’s economic growth has been relatively fast. The average growth rate in this five-year period is 4.5%. If it is calculated in the next four years, it is 4.8%. The world economy has entered a relatively high growth period.
The low period of the systolic period is high or low, and the cycle of the world economy is smooth, that is, when the trough is low, it is not low, but it is relatively high when it grows. Because of the relatively large changes in the world economic landscape, emerging markets have contributed a lot to world economic growth. This year is likely to be the beginning of a trough. The IMF said that the world economic growth was better than expected in the first half of this year, especially the United States. It was originally forecast that the United States is a recession. Looking at the current situation, the United States has 0.9% economic growth in the first quarter, 1.9% in the second quarter, and basically 2.3% in the first half of the year. The decline in economic growth was not as great as expected.
The slowdown in economic growth in emerging markets, including China, has not been as great as expected. We predict that China will continue to maintain double-digit growth because the GDP growth in the first half of the year is 10.4%, and the second half of the year will shrink. Next year may be a trough in this cycle. From the perspective of the second half of the year, the United States and the emerging market economies including China will likely be lower than the first half of the year, because the US financial crisis has appeared in the second wave, and Fannie Mae and Freddie Mac have experienced problems. The problem of two housing problems is no longer a matter of subprime mortgages.
China and emerging markets have experienced a surge in CPI. The July report of the IMF focused on two key points: Economic growth is a downside risk, and inflation is an upside risk. High food prices are forecast, but oil prices are not expected to be so high. Of course, the current drop in oil prices and food prices is a good sign. The world is still facing high CPI growth. Several countries in emerging markets have experienced problems, such as India and Vietnam. In addition, some countries in Latin America have high economic inflation.
Therefore, world economic growth has not been as good as expected, and the rate of decline may be relatively large. The IMF expects that if calculated quarterly, the world economy will grow by only 3.0% by the end of this year, that is, in the fourth quarter, by 4.8% in the fourth quarter of 2007 and by 4.3% in the fourth quarter of 2009. The world economic downturn may be the fourth quarter of this year and the first quarter of next year.
The world economy has entered a mid-term adjustment and short-term trough, but this trough is flat. For the past 30 years or so, the trough has, for instance, 1991. In fact, there was also an oil crisis. The global economic growth was only 1.4%. In 1992 and 1993, the two consecutive years of low growth of 2%, then this trough is relatively low. Later, when a trough appeared in the East Asian financial crisis, the growth rate was 2.5%. In 2001, the U.S. economic growth was a recession. Although the U.S. economic recession did not continue in the two quarters of recession, it was a recession in the first quarter and a recession in the third quarter. In that year, the economic growth was 2.2%.
The border between this year and next year may be a low point in the world economy and a low period in the mid-term cycle. The trough is ironic, and the world’s population growth rate is generally 1.1%. The world’s economic growth is still higher than the world’s population growth, so the world’s economy has not entered a complete recession. Emerging economies are relatively good. Although they have weak resistance, they still generally maintain rapid growth of more than 5%. Advanced economies have strong resistance. Now, both grain prices and crude oil prices are in downward trend. Overall, The world economic situation shows a relatively strong consolidation.
Supply and demand contradictions: 50-80 dollars is the sustainable oil price Subprime mortgage crisis and hot money speculation is the most important reason for high oil prices. Worries about reduced oil demand, a stronger US dollar, speculative surveys and profit-taking are the main reasons for the sudden drop in oil prices. The high oil price above $150 will surely defeat the world economy. In the remaining four months of this year, the likelihood of oil prices reaching around $150 has diminished.
High oil prices are also a result of the subprime mortgage crisis. Because the subprime mortgage crisis has degraded the global investment environment, the real estate bubble has been shattered, and financial stocks have deteriorated due to the subprime mortgage crisis. Many hedge funds and some other funds have no target for investment, thus targeting the commodity market. They believe that although the stock markets of the United States and Europe are declining, the world economy may still have better growth due to the rapid growth of emerging economies. As long as the world economy grows, there will be strong oil demand and thus oil prices will strengthen. Based on this, it is expected that a large amount of speculative funds such as hedge funds will enter the oil market, thus rapidly pushing up oil prices.
Hot money speculation is the main reason for high oil prices. The growth in demand of simple emerging economies will not push oil prices so high. Therefore, the IEA had to set up an expert group to investigate the speculation of hedge funds and other hot money, and will publish a report in October. Although the United States blamed the growth of oil demand in emerging economies such as China and India, it also set up an investigation team to investigate the role of speculation on the rise in oil prices.
On the other hand, the world is concerned about how speculative funds are hype, coupled with the investigations of the IEA and the U.S. Congress, so that hot money speculation will converge accordingly. In addition, since speculative funds have been profitable, profit-taking is also the main reason for the recent rapid decline, because the faster the foam is made, the faster the time for the breakdown will be. The price of oil may fall back next year because the Democratic Party may win after the US election. The Democratic Party does not have the background of the Republican’s energy interests. The party advocates a firm policy of the US dollar, and thus changes in the US dollar policy will lead to the appreciation of the US dollar. However, due to the current short-term oil bubble, It is so big, so it quickly falls back.
I don’t think there will be any higher highs this year because the market’s expectations are changing. If it really exceeds $150, it will surely break the world economy. Therefore, high oil prices are not sustainable. The fact that the world economy has fallen is already a fact. In this case, oil producers are actually very rational. For example, Saudi Arabia and others are increasing production because they know that high oil prices will not last long. The current price of oil cannot be considered to have returned to the fundamentals of supply and demand.
I think that 50-80 dollars per barrel is a sustainable oil price. This price can be profitable for producers and investors because the global production cost is only about 20 dollars per barrel. The high taxation in the West, last year's transportation price was much higher than the price of oil, because oil is mainly seaborne, and the economy has become financialized. With the burst of the financial bubble, the price of 50 US dollars a barrel should be reasonable. The price of 50-80 dollars per barrel has room for profit for all parties. The fact that producers increase their output is actually also returning to rationality, and they are afraid that the bubble will actually shatter. Therefore, in the remaining four months of this year, the likelihood of oil prices going to around $150 is reduced.
The $150 oil price per barrel is not sustainable. However, if the Iranian nuclear issue escalates, there will be peaks in oil prices, but at the same time it will also cause the oil price bubble to completely break down, that is, it will fall from a high level. Because the anticipation of the Iranian issue also has an impact on high oil prices. The Strait of Hormuz is also an important channel for global oil trade. Iran is also a major exporter of oil production. Unlike the seventies and eighties of the last century, nowadays it is very difficult for anyone who wants to control the Strait of Hormuz. There is a risk of oil disruption, but the possibility of large-scale oil cuts has diminished. Up to $100 per barrel is possible.
USD exchange rate: moderate stability will support the "second highest oil price"
If the U.S. dollar continues to be overvalued, it is likely to hit the hegemonic position of the U.S. dollar. The dollar is in a trough and moderately stable. Hard interruptions in oil supply are difficult, but soft interruptions can occur from time to time. High oil prices will still exist, but not ultra-high oil prices. There is no need to worry too much about the depletion of oil resources.
The main reason for the drop in oil prices is the appreciation of the U.S. dollar. If the U.S. dollar continues to depreciate, the phenomenon of multiple currencies may emerge, which is absolutely unwilling to see the United States. Therefore, the US dollar will recover relatively in the next six months. The recovery of the US dollar, which is backed by dollar-denominated commodity prices, is very favorable for the CPI correction, which is very beneficial to emerging markets. We can see that the problem in Vietnam started with CPI. CPI inflation pressure increased, real estate and stock market bubbles burst, and hot money fled. India is also such a problem. Latin American countries also face such problems.
The dollar is still at low level and it is not already in the recovery phase. It should be said that the bottom line of the depreciation of the US dollar has already come out. The last dollar adjustment cycle was in 1995. This round of dollar devaluation is another cycle that began in 2002. It is relatively long because of continuous problems. The pattern of the world economy and the forces of all parties are undergoing major changes. It has reached an adjustment stage.
In 1971, there emerged a stage in which the Briseton Day system drastically adjusted the dollar. In the mid-1980s, the yen exchange rate with the US dollar has undergone two major adjustments. This is an adjustment among allies. The adjustment of the US dollar is due to the imbalance in the growth, structure and pattern of the world economy. At the time of China’s accession to the WTO, this round of US dollar adjustment has actually begun. From 2002 to 2006, capital flows from developing countries to developed countries emerged. Coupled with the rise in oil prices, the Bressanonian System II has emerged. However, there is no adjustment among allies. The other side of the imbalance is China and emerging markets and oil exporters. The IMF organized a five-party meeting and could not adjust it, so there was a vicious adjustment of the US dollar.
If the U.S. dollar continues to be overbearing, it may well touch the hegemonic position of the U.S. dollar. Russia explicitly proposed to use the ruble to calculate its Hural oil trade, and the Gulf Cooperation Council (GCC) stated that it will launch their currency in 2010 to carry out oil settlement in the Middle East. Iran is more specifically proposed to be settled in currencies other than U.S. dollars. The dollar’s ​​status as a global oil settlement currency has been challenged. In June, U.S. President Bush, U.S. Treasury Secretary and Federal Reserve Chairman all said that the U.S. dollar needs to appreciate. If you were to casually talk about it, then this time it is sincerely hope that the dollar will appreciate.
The economic situation in Europe has not been as good as previously expected. Because Spain has already experienced problems, the economic situation in Germany and Italy is not very good either. Europe is likely to lower interest rates, which is conducive to the relative strength of the dollar. Due to inflationary pressures, the United States originally predicted that the United States would raise interest rates. Later, Fan Limei and Freddie Mac had problems, and the rate hike may have to be delayed until early next year. It should be said that the dollar adjustment cycle has reached a bottom, but it is still low and the US dollar may be better than expected in the second half of the year.
It cannot be said that the U.S. economy is very good. According to the IMF's chart, the US economy is likely to experience negative growth in the fourth quarter of this year. Because the effect of the 168 billion U.S. dollars tax rebate at the beginning of this year was over, and later the United States was expected to issue a second bailout plan. The second plan was to increase investment in public construction, but Paulson made it clear that he had no plan when he came to China recently. If there is negative growth in the fourth quarter, it is estimated that the second plan will be introduced. It is estimated that the dollar is in a trough and moderately stable. It should be good news for the development of the world economy.
However, there are often lagging effects on world economic growth. Many problems may lag behind the end of this year and the beginning of next year. The fourth quarter of this year and the first quarter of next year may be the lowest valley of world economic growth. The US dollar moderately stabilises and oil prices have moderately declined, but it is impossible to fully fall because the demand growth is also obvious. High oil prices will still exist, but not ultra-high oil prices. A barrel of 100 US dollars is absolutely a super high oil price, but a barrel of 50 US dollars to 80 US dollars is sustainable.
Looking at the next 20 years, it is difficult for other energy sources to completely replace oil in transportation. A large part of developing countries are oil and resource exporting countries. With the recent increase in resource prices, incomes have increased and economic growth has accelerated. For example, sub-Saharan African countries have all experienced growth of more than 6%, which is bound to drive their own oil consumption to increase. . As the geopolitical crisis in the Middle East, which is the main oil producing region, continues to occur, the possibility of a hard break in the supply of oil is less likely to occur. However, the soft interruptions such as oil pipeline attacks and tanker bombings continue to occur. Therefore it is difficult to return to the previous oil price level. At the same time, oil production technology is improving, but the cost of oil production is rising because low-cost easy-to-exploit oil is mined. At the same time, terrorist activities themselves have also increased the cost of oil.
In the United States, the per capita consumption of oil is 24 barrels per year, China is 1.9 barrels, and the original is 2.2 barrels, which is generally about 2 barrels. The U.S. GDP has reached 13.8 trillion U.S. dollars, and the scale of China's GDP should not have been too great. From the viewpoint of per capita oil consumption, with the development of emerging economic markets, per capita oil consumption in developing countries will increase; however, the current high oil consumption pattern in developed countries is not sustainable. In addition, there is no need to worry too much about the depletion of oil resources. Everyone is talking about the peak oil issue. The peak will certainly come but it is not now. I think that it will not happen in 20 years. The current oil resources are still increasing every year. Maybe when the peak came, technological advances at that time could already be realized without using oil.
Moderator: Reporter Hao Chunming The strength of the world economy directly affects the demand for oil. What is the current situation? What is the trend of development? How is the Iranian nuclear issue most likely to be interpreted? Will it affect the supply of oil? The linkage between the U.S. dollar and international oil prices remains strong. How will the market run? These issues have always been the core mystery that hinders international oil price judgments. In addition, why the recent soaring prices of international oil prices are divergent, what is the real main reason behind it? Recently, the "Securities Daily" reporter interviewed relevant experts and asked them to solve these mysteries.