Finding the right direction

Duncan Innes-Ker, regional editor, Asia, The Economist Intelligence Unit. [Provided to China Daily]

Duncan Innes-Ker, Asian regional editor for the Economist Intelligence Unit in London, says there are major problems on the horizon for Europe. The EIU forecast for the EU is that it will grow 1.6 percent in 2015, compared with 1.3 percent last year.

"There are a lot of risks clouding that forecast. Lower oil prices should help to provide a boost to consumption in the eurozone but Germany's opposition to full quantitative easing is making it hard for the European Central Bank to face down deflationary pressures."

There will be increasing focus on Japan in 2015. Japanese Prime Minister Shinzo Abe won a new mandate in the December's general election for his policy to revive the world's third-largest economy from its 20-year stagnation. On Dec 27, Japan's Cabinet gave the go-ahead for a new 3.5 trillion yen ($28.56 billion) stimulus. Japan's GDP growth halved to a year-on-year 1.9 percent in the third quarter, compared with 3.8 percent in the second quarter, bringing into question the Abenomics strategy.

Kuijs at RBS says it is important for the global economy as well as China that Abenomics works.

"Japan remains a very large economy. A thriving Japanese economy would be a plus for China even though the importance of Japan as a trading partner and as a source of FDI (foreign direct investment) is, in relative terms, not as large as 15 years ago," he says.

Innes-Ker at EIU is skeptical about any sort of revival of the Japanese economy this year and believes growth will only reach 1 percent at best.

"An economically reinvigorated Japan would be a major market for Chinese exports, but unfortunately the prospect of Abenomics sparking a resurgence still looks remote."

He believes Japan's current state carries warnings for China's policymakers if they do not push strongly ahead with financial reform. This is one of the reasons why Japan has had such a long period of decline, he argues.

"Japan's failed efforts to try and address its problems through slow and gradual reform have contributed to the creeping policy paralysis that Abenomics is trying to shake up."