U.S. Treasury Secretary Timothy Geithner, attending the Asia-Pacific Economic Cooperation meeting in Singapore Thursday, told Bloomberg News he sees "early signs" that the world is addressing imbalances in spending and saving that contributed to the global financial crisis. That's likely to be interpreted as a bullish sign by institutional investors. Equally important, meeting attendees, which include finance ministers from China, Japan, and Australia, also reiterated a pledge to maintain stimulus efforts "until a durable recovery in private demand is secured."
Economic Analysis: Over the past year, we've seen the start of several constructive global trends: 1) the U.S. savings rate has increased and consumption has declined; 2) the U.S. trade deficit is decreasing; 3) China is spending more, mostly via domestic infrastructure and construction projects; and 4) international demand appears to be rebounding, with Australia showing the first signs of sustainable GDP growth: central bank officials there are even increasing short-term interest rates – another post-financial crisis first among developed economies.
Still, the recovery remains in its infancy and more structural changes must occur to achieve balanced, sustainable global GDP growth. Chief among these are: 1) further increases in consumption in emerging markets, particularly in China, India, Japan, Latin America, and Eastern Europe, to offset a lack of consumption in the U.S. and 2) efforts to balance the huge U.S. budget deficit. Concerning the latter, the deficit is occupying large amounts of international capital but that credit line is not indefinite: eventually the U.S. will have to live within it means, and the sooner it addresses the deficit via tax increases and spending cuts, the better. from a sustainable global GDP growth standpoint.
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