There are three major long-term global economic issues, said ACCA, which recently published a related report together with the Institute of Management Accountants.
China: becoming rich before it becomes old?
While China has great advantages, including a modern infrastructure, a large domestic market, there are challenges that must be overcome if China is to succeed in propelling itself from a middle-income country to a high income one, said ACCA.
High levels of debt, especially among state-owned enterprises, are now limiting the ability of the authorities to stimulate growth through lower interest rates, the accountancy body pointed out.
In addition, the population of working age is now declining as the population as a whole ages, the report says. T
This will both reduce the trend rate of GDP growth and increase the dependency ratio – fewer workers in relation to an increasing number of older people, ACCA observed.
The Euro: fiscal integration needed
The Euro has survived its first two decades, despite several financial crises that threatened its very existence, said ACCA.
But it has not been a success - it has failed to deliver the real economic convergence among its members claimed for it at the outset, the accountancy body pointed out.
Indeed, the Euro’s “one size fits all” monetary policy has delivered economic divergence, not convergence, said Michael Taylor, ACCA’s chief economist.
History suggests that monetary unions only survive in the long run if they become fiscal unions too, he noted.
The next two decades of the Euro are likely to see further progress in this direction, ultimately resulting in a eurozone finance ministry with tax and spending powers, according to the report.
Limited progress so far has come following financial crises – a prime candidate for the next eurozone crisis is Italy, where public sector debt is very high and the banking system increasingly fragile, the report adds.
The US: public debt challenges
While the US economy has now expanded continuously for over 10 years, the longest such period in over 150 years, there are structural changes that represent challenges for policymakers, said ACCA.
“Perhaps the greatest concern arises from the level of public sector debt, which is on track to reach its highest level since 1946,” Taylor pointed out.
More positively, the US can operate at lower levels of unemployment without generating upward pressure on inflation, said ACCA, adding that the resurgence of the oil industry and the emergence of the US as a net exporter of oil is a positive for the economy because it is not reliant on the Middle East for supplies.
“But again, it is one that requires an adjustment in policy responses and may introduce greater volatility to the economic cycle,” said Taylor. “Now a lot of investment and spending is tied into the oil market therefore this could increase volatility in the oil sector.”