Carnegie Endowment for International Peace
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Although China's growth next year is likely to remain high, expectations for China's average growth over the next decade are being revised downward.
European economic adjustment will be both economically and politically painful, but Europe's financial crises will continue to recur until real fundamental rebalancing occurs.
China's interest rate hikes are primarily intended to rebalance China's overheated investment sector, but they will likely have little effect on the country's rising inflation.
Europe's debt crises are likely to worsen, requiring many European countries to implement difficult long-term economic and political adjustments to recover from their fiscal woes.
Although the U.S. Federal Reserve's recent quantitative easing is a necessary step, it makes China even less likely to embrace Secretary Geithner's proposal to limit current account surpluses.
An international agreement to limit current account surpluses would be a productive step toward global economic rebalancing, but in order to decrease its trade deficit, the United States must also enact domestic reform.
The Chinese central bank's decision to raise interest rates is a positive step toward economic rebalancing, but it needs to be followed up by larger rate hikes if China is to increase domestic consumption.
In order to sustain economic growth during its transition toward a more balanced economy and help keep U.S. demand for Chinese exports high, Beijing should invest in the U.S. transportation infrastructure.
China will likely expand access to cheap credit even as it revalues its currency in the coming months, counterbalancing the effects of revaluation and further exacerbating China's economic imbalances.
Political concerns will dominate Beijing's economic decision-making as Chinese leaders seek a gradual adjustment that will balance competing constituencies.