Annual World Economic Forum meeting in Davos took place this week. Main challenge for the up-coming year is recovery of financial markets, where reforms are under way, but not yet completed. To the EU leaders, most worrying is an inflation, which is currently below the 2 per cent target and probably will remain there for at least two years. Other issues discussed at Davos include a risk of unbalanced growth, and new risks, such as the issue of how tapering, in other words the reduction of the Federal Reserve's quantitative easing or bond buying program, takes place, at which speed, how it is communicated and what spillover affects it has. US Federal Reserve plans to end its stimulus program in order to avoid a credit bubble as it believes that the outlook for the US economy is brightening. Things to watch in 2014 include thorough check of the euro zone's largest banks´ balance sheets by the European Central Bank. ECB aims to bring transparency on the quality of banks' loans and other assets. Further, the initial increase in merger activity is expected to take place within single countries as weaker companies restructure and accept effective takeovers by domestic rivals. Bankers believe this will then spread to a pan-European level. Optimistic remain prognoses for recovery of United Kingdom and Japan. Japan expects its 2 per cent interest rate target to be achieved in two years.
1st February 2021