It?s all about China

China continues to dominate the news headlines this week. After the publication over the weekend of what some commentators are calling the most far reaching reform package since 1985, yesterday China's central bank stated that it intends to follow a policy that gradually moves away from regular interventions in the foreign exchange market.

The head of the People’s Bank of China, Zhou Xiaochuan announced that the bank would gradually increase the Yuan’s daily trading band. This is the latest in a string of policy moves to bolster development in global capital markets in the use of the Yuan.

The euro found support yesterday after the publication of the ZEW survey on economic sentiment in the biggest economy in the euro zone, Germany revealed that investor confidence rose to the highest level in more than four years.

ZEW President Clemens Fuest commented that "Economic expectations for Germany have been hovering at a high level for months. The slightly improved economic outlook for the euro zone might have contributed to this development. We continue to expect German GDP growth of about 1.5% in 2014, with the euro-zone growing by about 0.5%."

Meanwhile, the Organisation for Economic Co-operation and Development (OECD) gave a downbeat assessment of the prospects for the world economy yesterday, revising down its global growth forecasts "significantly" for this year and the next, citing a slowdown in emerging markets.

The OECD now expects the global economy to expand by just 2.7% in 2013 and by 3.6% in 2014, compared with previous estimates published in May of 3.1% and 4% growth respectively.

Pier Carlo Padoan, Deputy Secretary-General and Chief Economist of the OECD, said that growth since the financial crisis has been “uneven and hesitant” and said that policy needs to address some of the downside risks that are holding back the recovery. Padoan added that “Job creation has been even more disappointing. Clear and credible strategies are needed for how jobs and growth will be created".

The OECD also warned that a too rapid tapering of asset purchases and the political brinkmanship in Washington over the debt ceiling which nearly made the US, the biggest economy in the world default on its debt obligations in October were potential risks that could derail the global recovery.

Padoan added that policymakers must “resist the temptation to back off reforms” once the recovery takes hold and went on to state that “If, however, as the recovery strengthens, governments are complacent, and remain behind the curve, policy action will be too little too late. Policy inaction or mistakes could have much more severe consequences than the turbulence seen to date and jeopardise growth for years to come.”