The recovery of the American economy along with benefits from technological advances will combine to revitalize the world economy over the next decade, says Larry Hatheway, chief economist at UBS (NYSE:UBS).
"For all the attention focused on the 'new normal' and its manifestation as a slow-growth, low-inflation, low-interest-rate environment, it is easy to overlook important structural changes under way in the world economy, above all in the U.S.," Hatheway wrote in a note published Monday. "In all likelihood, these changes portend an ascendant U.S. economy in the decade to come."
He says U.S. households and businesses are resuming debt-financing of cars, residences and capital goods, and banks are easing lending standards and extending more credit.
"The U.S. recovery is broadly based, supported by housing, credit formation, business investment spending, competitive exports, investment in the energy sector, and household income formation. And, as a result, the Fed is openly contemplating a reversal of its accommodative policy stance," he writes.
Other tenants of the "new normal" are also losing validity: Positive economic developments in the euro zone's periphery are narrowing the difference between the core and peripheral economies, easing risk premiums; Japan may finally be pulling itself out of its long-term deflation; and emerging economies are stumbling. Finally, technological advances augur economic growth. Hatheway cites hydraulic fracturing and 3D printing, advanced robotics, mobile technology and cloud computing.
These developments will benefit the U.S. economy and dollar more than other economies and currencies, says Hatheway.
"It is human nature to project the present (and near past) into the future. Often, that's appropriate. But there are reasons to believe that the world economy is changing in profound ways. A prolonged and painful era of advanced economy malaise juxtaposed by emerging-economy euphoria is, as our teenagers might say, 'so yesterday.' New challenges lie ahead, but so too does much promise, including a revitalized world economy, led by an ascendant America."