Dr razeen sally

THE EMERGING GLOBAL ECONOMY AND ITS IMPACT ON

ASIA

Razeen Sally

GLOBAL ECONOMY, EMERGING MARKETS, ASIA 2012

• Shift to the East

- Sharp divergence of economic performance after GFC

- Accelerates long-run convergence of emerging markets,

especially in Asia, on West

- Projections to 2030

- Policy outlook: Western pessimism, Asian optimism – but

growth slowdown this year

GDP Since the Crisis

(Million 1990 international $) Source: Maddison and OECD

Share of Global GDP

for Asia and ROW Share of Global GDP per World Region

0

10

20

30

40

50

60

70

80

90

1820 1870 1913 1950 1973 1998 2001 2030

Asia

Rest of the World

Share of Global GDP

for parts of Asia Share of Global GDP per World Region

0

5

10

15

20

25

30

35

1820 1870 1913 1950 1973 1998 2001 2030

Other Asia

Japan

China

India

(Million 1990 international $) Source: Maddison and OECD


• Caveats to Asian optimism

-- Short-term:

- Global/emerging-market growth slowdown

- Growth fuelled by big increase in bank credit

-- Medium-term:

- Stalled reforms

- Repressed business climates and weak institutions

- Still coupled to the West

World Ranking in Ease of Doing Business – Top 10 (2013)

Ease of

Doing

Business

Starting

a

Business

Dealing with Construction

Permits

Getting Electricity

Registering

Property

Getting

Credit

Protecting

Investors

Paying

Taxes

Trading

Across

Borders

Enforcing

Contract

Resolving Insolvency

Singapore 1 4 2 5 36 12 2 5 1 12 2

Hong

Kong 2 6 1 4 60 4 3 4 2 10 17

New

Zealand 3 1 6 32 2 4 1 21 25 17 13

United

States 4 13 17 19 25 4 6 69 22 6 16

Denmark 5 33 8 14 6 23 32 13 4 34 10

Norway 6 43 23 14 7 70 25 19 21 4 3

United

Kingdom 7 19 20 62 73 1 10 16 14 21 8

South

Korea 8 24 26 33 65 12 49 30 3 2 14

Georgia 9 7 3 50 1 4 19 33 38 30 81

Australia 10 2 11 36 37 4 70 48 44 15 18

World Ranking in Ease of Doing Business (2013) Ease of

Doing

Business

Starting

a

Business

Dealing with Construction

Permits

Getting Electricity

Registering

Property

Getting

Credit

Protecting

Investors

Paying

Taxes

Trading

Across

Borders

Enforcing

Contract

Resolving Insolvency

Singapore 1 4 2 5 36 12 2 5 1 12 2

Hong Kong 2 6 1 4 60 4 3 4 2 10 17

Japan 24 114 72 27 64 23 19 127 19 35 1

South Korea 8 24 26 3 75 12 49 30 3 2 14

Taiwan 16 16 9 6 32 70 32 54 23 90 15

Malaysia 12 54 96 28 33 1 4 15 11 33 49

Thailand 18 85 16 10 26 70 13 96 20 23 58

Brunei 79 135 43 29 115 129 117 22 40 158 46

Vietnam 99 108 28 155 48 40 169 138 74 44 149

Indonesia 128 166 75 147 98 129 49 131 37 144 148

Philippines 138 161 100 57 122 129 128 143 53 111 165

Cambodia 133 175 149 132 115 53 82 66 118 142 152

Laos 163 81 87 138 74 167 184 126 160 114 185

Myanmar n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

China 91 151 181 114 44 70 100 122 68 19 82

Sri Lanka 81 33 112 103 143 70 49 169 56 133 51

Pakistan 107 98 105 171 126 70 32 162 85 155 78

Nepal 108 105 97 96 21 70 82 114 171 137 121

Bangladesh 129 95 83 185 175 83 25 97 119 182 119

India 132 173 182 105 94 23 49 152 127 184 116


USA

- Obama administration: interventionism at home; ambivalence on trade; domestic weakness cramps external leadership

- Weak recovery this year; low growth prospects

- The “fiscal cliff” and business uncertainty

- Deadlock and polarisation in US politics


• USA (cont.)

- Reasons for optimism:

a) Structural transformations in the US economy

- Energy revolution (fracking and shale)

- Manufacturing revolution (advanced materials)

- US MNEs, services and the Asian middle class

b) The US political system

- Vigorous debate on policy choices

- Fluid, flexible elites (the “revolving door”)

- Decentralised government and competitive experiments


• USA (cont.)

- Good prospects for an American economic renaissance

- And for the revival of American leadership in the world

- Robust US engagement in Asia on security and

economic issues


• EU

-- Flat growth and back into recession

-- Crisis aftermath: Single Market under stress; internally

divided and externally weak

-- Eurosclerosis – but pockets of good performers

-- Euro crisis: a triple crisis of sovereign debt, banking and

the currency

-- Half-baked solutions followed by attempts at strong

policy centralisation


• EU (cont.)

- Why I think the euro will fail:

a) Insufficient “firepower”

b) Centralised rules will be weak political compromises

c) Unrealistic politics

- Consequences of a euro break-up for Asia

- Future of the EU and its role in Asia

The official debt

explosion despite

the Maastricht Treaty

ceiling of 60%

Debt/GDP

Source: Jagadeesh Gokhale, Measuring the

Unfunded Obligations of European Countries

Policy Report No. 23 January 2009, National

Center for Policy Analysis

THE TRUE DEBT OF EUROPE (Official + Pension + Health + Welfare; as % of GNP)

Greece 875%

France 549%

Portugal 492%

United Kingdom 442%

Germany 418%

Ireland 405%

Italy 364%

Spain 244%

EU 25 434%


China

- Now one of Big 3; a China-centred Asia

- Enormous external opening 1990s-mid 2000s; border barriers low, but still high non-border barriers

- Recent policy slippage: stalled reforms and industrial- policy activism; translates into trade protectionism and conflict

- Supercharged stimulus: macroeconomic dangers; reinforces public sector at expense of private sector and MNEs


-- Good news: current-account surplus narrowed sharply and real exchange rate has appreciated

-- Bad news: structural distortions in the economy getting worse: over-saving, over-investment, under-consumption; demographics; declining productivity

-- Need for second-generation reforms – factor markets as well as product markets (land, labour, capital)

-- But much more difficult: vested interests at heart of Party State

-- 2012: growth slowdown; Bo Xilai affair; mini-reforms on currency, FDI and financial markets; leadership change


• China (cont.)

- Policy scenarios under new leadership

a) Conservative retreat

b) Liberal reform

c) Muddle through – most likely


• China (cont.)

- Prospects for next decade: growth slowdown, possible

mini-crash

- Increasing conflict between market economy/middle-

class society and unreformed political system

- China more aggressive in Asia, but unlikely to exercise

true global and regional leadership

China: components of GDP


• Other Asia

- Japan, South Korea Taiwan

- Hong Kong and Singapore

- ASEAN countries

- India and South Asia


• Take-aways

- “No such thing as Asia” – rather low-income, middle-

income and high-income Asia

a) Great potential for “catch-up” growth in low-income

Asia; must get policy basics right

b) But bigger challenges for middle- and high-income

Asia to deliver innovation-based growth; requires

complex structural and institutional reforms

c) Enduring weaknesses in economic institutions and

political systems


• Take-aways (cont.)

- Stronger US engagement in Asia; US companies at the

heart of supply chains

- Contingency plan needed to deal with external

consequences of euro break-up

- External consequences of mounting domestic political

and economic problems in China

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Dr razeen sally