Recovery & risk: Asian economic
prospects
in 2014
Telstra/Asia House
Asia Business Champions
June 2014
Dr Simon Baptist
Ch...
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25,000
30,000
China
US
India
Japan
ASEAN
Germany
Brazil
Russia
UK
Mexico
France
Korea
2007
20...
Three big themes for 2014 and beyond
Synchronised upturn in the major developed economies
 US recovery is deepening; broa...
Asia economic forecast
China is still one of Asia’s fastest growing economies
GDP growth 2014-18 average % pa. Source: The Economist Intelligence...
Most new Asian economic activity will be in China and
India
Additional GDP 2014-2018, nominal US$. Source: The Economist I...
Many Asian economies are passing the consumption
tipping point of US$3-5,000 per person
0
2,000
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10
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China
National Bureau of Statistics and Economist Intelligence Unit
China: Slowing but setting a better foundation
Income over R...
Wages in China are also rising rapidly:
this is having have big implications
Source: The Economist Intelligence Unit
BR
CN...
Go west: China is not a single story
• Wages in Shanghai
are approaching
those of some OECD
countries
• Wages differ
betwe...
China’s cities are coming into focus
But the transition from an investment- and export-led economy will entail lower
growt...
China challenges consensus on politics and development
• The growth rate in China, with strong government control, has bee...
Chinese firms are also investing record amounts overseas
Chinese outward FDI will top US$200bn in 2018
Japan
Japan: No surge in sight, but better outlook
-20
-15
-10
-5
0
5
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2012-Q1
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India
India: Slower growth, high inflation…but plenty of upside
• India’s economy soared between
2004-2010
 Powered by foreign ...
ASEAN
ASEAN is set to become a major economic power
The economy of the ASEAN-6 will be as big as Germany’s by 2018
Source: The E...
ASEAN consumers are becoming richer
Source: The Economist Intelligence Unit
More people’s income will pass the critical US...
Asian business environment
What determines an investor’s location decision?
• Wages in nominal, exchange-rate adjusted terms
• Productivity of worker...
The business environment in Asia can be challenging
• Operational risk in Asia
can be high,
particularly in
Myanmar
• Inve...
Asian companies still investing in China, but other markets
are catching up
Source: Economist Corporate Network Asia Busin...
India looks good for labour-intensive manufacturers
• India, Philippines,
Peru, Taiwan and
Poland are
becoming more
attrac...
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Recovery & risk: Asian economic prospects in 2014

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Keynote address by Simon Baptist, Chief Economist at the Economist Intelligence Unit, during the Asia Business Champions conference held during June 2014

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Recovery & risk: Asian economic prospects in 2014

  1. 1. Recovery & risk: Asian economic prospects in 2014 Telstra/Asia House Asia Business Champions June 2014 Dr Simon Baptist Chief Economist
  2. 2. 0 5,000 10,000 15,000 20,000 25,000 30,000 China US India Japan ASEAN Germany Brazil Russia UK Mexico France Korea 2007 2020 GDP, purchasing power parity; 2005$US bn. Source: The Economist Intelligence Unit. Global economic heft is shifting
  3. 3. Three big themes for 2014 and beyond Synchronised upturn in the major developed economies  US recovery is deepening; broad based  Europe is growing, though fitfully  Japan: Abenomics helping, but no panacea Tighter financial conditions globally  It’s all about the Fed; less liquidity  Will capital flight destabilise developing economies? Is there risk of an EM crisis? Back to basics in emerging markets  China, India, Brazil, etc: reforming, resetting and rebalancing
  4. 4. Asia economic forecast
  5. 5. China is still one of Asia’s fastest growing economies GDP growth 2014-18 average % pa. Source: The Economist Intelligence Unit. 0 1 2 3 4 5 6 7 8 9 PG KH MM LK CN VN IN ID PH BD MY SG TH KR PK TW AU NZ HK JP But China is slowing, and India and Indonesia are speeding up
  6. 6. Most new Asian economic activity will be in China and India Additional GDP 2014-2018, nominal US$. Source: The Economist Intelligence Unit. 0 1,000 2,000 3,000 4,000 5,000 6,000 CN IN ID JP KR AU TH MY PH SG Indonesia, South Korea and Thailand are also EMs to watch
  7. 7. Many Asian economies are passing the consumption tipping point of US$3-5,000 per person 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 TW MY CN TH ID LK PH PG VN IN Consumption per person 2018, nominal US$. Source: The Economist Intelligence Unit. Big Asian economies are becoming middle income
  8. 8. 10 15 20 25 30 35 40 45 50 55 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 China India Japan Germany US World Asia has some of the world’s oldest and youngest countries Source: UN World Population Prospects; Haver Analytics Median age India is an exceptionally young country!!!
  9. 9. China
  10. 10. National Bureau of Statistics and Economist Intelligence Unit China: Slowing but setting a better foundation Income over Rmb40,000 • Despite the slowdown, we expect 7.3% growth in 2014 • Still very fast expansion for a US$10trn economy • Government looking to set foundation for solid growth; away from “bubble” economy • Rising incomes supporting consumer spending But a new era has started; growth will average 6.5% over the next few years Income over Rmb25,000
  11. 11. Wages in China are also rising rapidly: this is having have big implications Source: The Economist Intelligence Unit BR CN DE IN MX ZA TR US 100 150 200 250 2006 2008 2010 2012 Year Nominalwageindex,localcurrency,2005=100
  12. 12. Go west: China is not a single story • Wages in Shanghai are approaching those of some OECD countries • Wages differ between provinces by up to a factor of 2.5 • Competition for migrants between cities is increasing • Western and central provinces are cheaper, but logistics are more challenging Source: The Economist Intelligence Unit Guangdong Henan Shanghai Sichuan Tianjin 60000 90000 120000 2013 2014 2015 2016 2017 2018 Year Nominalwages,RMBperyear
  13. 13. China’s cities are coming into focus But the transition from an investment- and export-led economy will entail lower growth, and this will not be easy to manage Dongguan Erdos GuangzhouHefei Luzhou, Sichuan Qitaihe, HLJ Shijiazhuang Taiyuan 10 20 30 40 50 60 70 80 90 100 20 30 40 50 60 70 80 90 100 110 Urbanisationrate(%) Per head consumption ('000) Urbanisation and consumption, 2030 Source: The Economist Intelligence Unit
  14. 14. China challenges consensus on politics and development • The growth rate in China, with strong government control, has been amongst the fastest in the world • Chinese firms have faced resistance due to perceptions of being too close to the government • Governments in Africa, Latin America and the rest of Asia have used the Chinese example to rebuff calls for greater democracy or openness BUT • Will innovation and creativity, needed once catch-up growth phase ends, be possible without such freedoms? • Greater demands from the middle classes for opportunities and freedom have led to social unrest in other countries; can China buck the trend?
  15. 15. Chinese firms are also investing record amounts overseas Chinese outward FDI will top US$200bn in 2018
  16. 16. Japan
  17. 17. Japan: No surge in sight, but better outlook -20 -15 -10 -5 0 5 10 2012-Q1 2012-Q2 2012-Q3 2012-Q4 2013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q1 -8 -6 -4 -2 0 2 4 6 8 10 12Tankan business sentiment Fixed capital investment • “Abenomics”—fiscal stimulus, structural reforms, money-printing  Twice as much easing as the US Fed, as share of GDP • Outlook has improved  Stronger business investment; three quarters of +8-9% growth • Inflation is back • Consumption tax hike will hit consumer confidence • Population, workforce will contract • Outlook? Not rapid growth, but sustained, moderate growth • Nationalism a worry Tankan: diffusion index. Gross fixed capital formation, % change, annual rate. Source: Tankan business survey, all enterprises; Cabinet office for investment
  18. 18. India
  19. 19. India: Slower growth, high inflation…but plenty of upside • India’s economy soared between 2004-2010  Powered by foreign investment  But deep problems—politics, poor infrastructure, over-regulation, labour issues—never addressed • Bubble economy led to high inflation, rising debt, slow growth • On the road back  Better economic management  Still-young population; education?  Politics is still disruptive, divisive • Watch Indonesia for a similar story 0 2 4 6 8 10 12 14 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 GDP Inflation Real GDP, % change; Consumer price index (CPI), % change YoY. Source: National government, Economist Intelligence Unit
  20. 20. ASEAN
  21. 21. ASEAN is set to become a major economic power The economy of the ASEAN-6 will be as big as Germany’s by 2018 Source: The Economist Intelligence Unit
  22. 22. ASEAN consumers are becoming richer Source: The Economist Intelligence Unit More people’s income will pass the critical US$5,000 level
  23. 23. Asian business environment
  24. 24. What determines an investor’s location decision? • Wages in nominal, exchange-rate adjusted terms • Productivity of workers • Availability and cost of raw materials • Business environment • Logistics, profit repatriation, FDI policy, trade barriers, unions, red tape • Public relations and corporate social responsibility • Political stability • Environmental and natural disaster threat • Diversification of supply chains • Proximity to markets • Balance of skills and cost in each of local and expatriate workforces The EIU combines all of these into a measure of operational risk….
  25. 25. The business environment in Asia can be challenging • Operational risk in Asia can be high, particularly in Myanmar • Investors need to consider the types of risk they can competitively manage • In some cases the FDI environment is different from the overall business environment, eg Vietnam more welcoming for FDI than its total score suggests Source: The Economist Intelligence Unit
  26. 26. Asian companies still investing in China, but other markets are catching up Source: Economist Corporate Network Asia Business Outlook Survey 2014
  27. 27. India looks good for labour-intensive manufacturers • India, Philippines, Peru, Taiwan and Poland are becoming more attractive compared to China • Bangladesh, Vietnam, Nigeria, Russia and Brazil are getting less attractive Labour competitiveness increasing against China Labour competitiveness decreasing against China •Source: Economist Intelligence Unit
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