ANCHOR OF ECONOMIC

AND FINANCIAL STABILITY

THE ECONOMY
THE GLOBAL RECOVERY PICKED UP PACE

The global economy expanded by 3.8% in 2013, similar to the 3.9% growth in 2012. However, the recovery gathered momentum as the year progressed. In the United States (US), private consumption remained resilient despite a large fiscal contraction that dragged growth down, particularly in the first half of the year. The Euro zone emerged from recession in the second quarter of 2013, on the back of strengthening private investment. Japan’s growth was boosted by fiscal and monetary stimuli, although weaker exports dampened momentum in the second half. In Asia ex-Japan, a slowdown in domestic demand was partially offset by a strengthening of external trade in late 2013.

After five years of unconventional monetary policy, the US Federal Reserve started the process towards policy normalisation last year. In mid-2013, concern over the timing of the Federal Reserve’s withdrawal of quantitative easing (QE) sparked a market sell-off and an abrupt reversal of capital flows in some emerging economies. Following this bout of financial volatility, several countries in Asia took decisive policy action to halt the build-up of external imbalances and bolster confidence. As a result, market reactions following the start of QE tapering in December 2013 were generally more subdued.