Wealthy Nations Daily Update - US Department of Treasury

In the key findings of the report the US Department of Treasury did not hold back on the difficulties the US economy is facing with regards to global growth or the impact of a strong dollar on the domestic economy or the fact that other economies should be doing more to promote growth. Its reads;

“In contrast to solid U.S. performance, global economic outcomes have been disappointing and remain of concern. Not only has global growth failed to accelerate, but there is worry that the composition of global output is increasingly unbalanced. Weak global growth importantly reflects an insufficiently comprehensive mix of macroeconomic policies in some key countries, which leaves substantial scope for efforts to support domestic demand. Alongside strengthening U.S. economic activity, lackluster growth abroad, and falling commodity prices the broad nominal trade weighted dollar appreciated by 7.9 percent in the second half of 2014, with another 4 percent appreciation in the first quarter of 2015”

“The global economy should not again rely on the United States to be the only engine of demand. Doing so will not lead to a pattern of strong, sustainable and balanced global growth, the very aim of the G-20. To achieve this objective, many countries need to implement a balanced policy mix. Excessive reliance on any single lever of policy is not enough. Rather, policymakers need to use all levers, including fiscal stimulus where fiscal space exists, to complement monetary policy accommodation. In conjunction, many countries also need to implement structural reforms to help boost potential growth and address persistent stagnation. Balanced approaches to 3 macroeconomic policies are particularly needed in large surplus countries, notably in Germany, China, Japan, and Korea – consistent with agreed G-7 and G-20 commitments”

Also in this latest semi-annual report to congress the US Treasury shifted its previous assessment that the Chinese Renminbi was ‘significantly undervalued’ to now saying it was “below its appropriate medium-term valuation”. However, the Treasury does believe an appreciating currency could help speed up domestic reform in China. "Further currency appreciation is key ... and will support the purchasing power of Chinese consumers and help shift production towards non-traded goods and services," the report said.

In a different tone to previous reports the Treasury stated “Given economic uncertainties, volatile capital flows and prospects for slower growth in China, the near-term trajectory of the RMB is difficult to assess,” adding “However, our judgment is that the RMB remains below its appropriate medium-term valuation.” They went on to say that there were many market factors exerting downward pressure on the RMB, including the unwinding of carry trades, however these were likely to be transitional towards a more free floating currency. With the PBoC longer term intentions in mind the report went on to say “Ultimately, the implementation of the new foreign exchange mechanism — and specifically, whether China allows the RMB to respond flexibly to appreciation as well as depreciation pressures — will indicate how responsive the new mechanism is to market forces,”