Global economic growth will still be anaemic in 2015, Chinese slowdown will continue, believes Kenneth Rogoff, Professor - Economics, Harvard University.
Speaking to CNBC-TV18 on its special show 'The World Economy 2015,' Rogoff said there are still doubts whether Japan can recover at all with just quantitative easing or whether it will need some fundamental changes like allowing more women folk into work. Of the lot, Rogoff expects US to have the best growth, but low inflation may still keep the Fed from hiking rates or hiking rates more than once. He is hopeful that commodities fall will not continue into 2015 but could possibly recover.
Rogoff started as a professional chess player and became an international master and a grand master. He took a break and took to economics. He graduated from Yale and took his Doctoral degree from MIT.
Rogoff was economist at the IMF and member of the board of governors of the Fed. More recently, he became renowned as the co-author of the book "This Time is Different: Eight Centuries of Financial Folly." The book argued that too much public debt causes slow growth and even recession. Kenneth Rogoff is currently professor of economics at Harvard University.
Below is verbatim transcript of the interview:
Q: Let me begin with US economy. The flow of data indicates that we will easily finish with over 3 percent growth in the current year. Are you sure that 2015 will be even more robust for the US economy?
A: I do. The US has very solid domestic demand, very broad based and there is good reason to be optimistic that growth will be 3 percent, maybe even a little better. It is a very asynchronous recovery in the world as a whole and that has a risk to the US. However, on the whole, the recovery is solidly ingrained and not about to come to an end.
Q: I was only wondering if US can grow in grand isolation. Can a slowing Chinese economy and recession in Europe in someway cast its shadows on the US? The dollar has been rising steadily and earlier this year Stanley Fischer worried if the strong dollar may not slowdown the US economy.
A: The US is a more closed economy than many others and fairly resilient to rises in the dollar. It affects individual manufacturers, exporters. However, the dollar is so dominant in world trade, many prices are indexed to the dollar and it doesn't pass through to relative prices, to competitiveness quite the way it does in smaller economies.
When you heard Stanley Fischer and Janet Yellen worry about the dollar they were sort of trying to find reasons that the Fed might hold back on tightening, trying to express their concerns about the fragility potentially of the economy. I do not think it is really the dollar per se.
If Europe goes into a more dramatic slowdown, if Japan doesn't continue atleast a decent growth, if China has a collapse that will hit the US, if those things don't happen, maybe growth will be even better. But it is moderate growth, a little above trend would be the order of the day most likely.
Q: If you are convinced about US growth what is your take on whether and when the Fed will hike rates in 2015?
A: This is a very tough call. It is clear that the economy is doing well. It is clear that labour markets are improving and if this were a normal recession the Fed would already have raised interest rates and be looking to raise them further. They are very nervous that they are not quite sure what is going on.
They do not know why global interest rates are so low. They do not know why inflation is quite as low as it is. It makes them more cautious. Also, Janet Yellen has been successful in pulling the committee towards her more dovish view point.
I see them holding off for as long as they can, looking hard at the data. When the data shows that inflation is rising and seems to be set to rise for quite a while broadly affecting expectations then they will move.
I do not think they will move until there is firm evidence that inflation is not just rising but rising on a sustained basis. I bet that does happen sometime in the second half of 2015 but a very early hike in 2015 right now would require much better data that current projections.
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