Rising East, emerging West

Expect a better 2014. World economic growth should pick up and inflation should stay benign. But the way growth plays out will depend largely on policy changes in the US and China, the world's two largest economies. Will incoming US Federal Reserve Chair Janet Yellen be able to finish unwinding the Fed's five-year-old quantitative easing (QE) program without hurting the fragile recovery? Can Premier Li Keqiang execute the boldest set of economic reforms in three decades to turn China into a more sustainable, consumer-driven economy? We think the answer is "Yes" to both questions.

All signs point to a stronger year for the world economy, with global growth expected to accelerate to 3.3 percent from this year's 2.7 percent thanks to improvements in the US and Europe. Nothing signals this better than outgoing Fed Chairman Ben Bernanke's decision to start unwinding QE in the US - this pronouncement is a vote for the growing strength of the US economy and shows how far the economy has progressed since the dark days of 2008-09. A recovering West is excellent news for world trade and for the continued outperformance of emerging markets.

The expected ending of QE by the close of 2014 would be a significant event, even if QE was never the answer to all the challenges facing the developed world, particularly the US. With policy rates hovering close to 0 percent, QE was unlikely to raise growth and encourage job creation. And it did not. It did, however, play an important role.