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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
GLOBAL ECONOMY, EMERGING MARKETS, ASIA 2012
• 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
GLOBAL ECONOMY, EMERGING MARKETS, ASIA 2012
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
GLOBAL ECONOMY, EMERGING MARKETS, ASIA 2012
• 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
GLOBAL ECONOMY, EMERGING MARKETS, ASIA 2012
• 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
GLOBAL ECONOMY, EMERGING MARKETS, ASIA 2012
• 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
GLOBAL ECONOMY, EMERGING MARKETS, ASIA 2012
• 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%
GLOBAL ECONOMY, EMERGING MARKETS, ASIA 2012
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
GLOBAL ECONOMY, EMERGING MARKETS, ASIA 2012
-- 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
GLOBAL ECONOMY, EMERGING MARKETS, ASIA 2012
• China (cont.)
- Policy scenarios under new leadership
a) Conservative retreat
b) Liberal reform
c) Muddle through – most likely
GLOBAL ECONOMY, EMERGING MARKETS, ASIA 2012
• 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
GLOBAL ECONOMY, EMERGING MARKETS, ASIA 2012
• Other Asia
- Japan, South Korea Taiwan
- Hong Kong and Singapore
- ASEAN countries
- India and South Asia
GLOBAL ECONOMY, EMERGING MARKETS, ASIA 2012
• 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
GLOBAL ECONOMY, EMERGING MARKETS, ASIA 2012
• 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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