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Manu Bhaskaran - Asian economic prospects - opportunities for Australia
 

Manu Bhaskaran - Asian economic prospects - opportunities for Australia

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Presented from Directorship13, the Australian Institute of Company Directors national conference

Presented from Directorship13, the Australian Institute of Company Directors national conference

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    Manu Bhaskaran - Asian economic prospects - opportunities for Australia Manu Bhaskaran - Asian economic prospects - opportunities for Australia Presentation Transcript

    • 1ASIAN ECONOMIC PROSPECTS:OPPORTUNITIES FOR AUSTRALIACompany Directors Conference8th May 2013Manu BhaskaranCentennial Group
    • 2KEY TAKEAWAYSGood upside with manageable risks Cyclical: Asia showing resilience Stronger fundamentals, domestic demand Long term: best since 1990s crisis ASEAN in particular is making a comeback Risks to watch Geo-political: Middle East  oil prices Country political risks: Malaysia Policy/overheating risks: Vietnam Implications for Australia 2
    • 3CYCLICAL OUTLOOK:WATCH EXTERNAL IMPACT
    • 4EXTERNAL ENVIRONMENTEx-US, main markets are weak in 2013Country % worldGDPOutlookUS 23.1 Positive: Housing, credit flowsConstraints: Fiscal, rising savings rateEurozone 19.3 Negative: Austerity + political stresses= episodic stressesChina 9.3 Slowing manufacturing activity hurtsKey risk: Imbalances, excesses remainJapan 8.7 Positives: Yen, monetary stimulusNegatives: Structural weaknessesOtheremerging8.3 Worse: clear signs of slowdown
    • 5EXTERNAL ENVIRONMENT (2)Other global drivers mostly negativeFactor OutlookCommoditypricesOil: falling but risk premium could spikeCyclicals down: rubber, base metals, coalFood: rising risks due to weatherTech spending Business uncertainty hurtingNew product launches helpCapital flows Volatile, still potentially destabilisingCurrencies Volatile, competitive depreciation inAsia/G-3?Protectionism The dog that has not barked – yet.
    • 6KEY DRIVERS OF ASIAN GROWTHGlobal indicators turning up but risks remain6
    • 7ASIAN RESILIENCE IS HIGHImproved Asian resilience allows shocks to be absorbed
    • 8CYCLICAL: DOMESTIC DEMAND Infrastructure investment is rising again Thailand, Malaysia, Singapore … Consumers remain optimistic Tight labour markets: rising wages, jobs Low interest rates with low personal leverage Strong remittances but farm incomes slowed Govt policy measures support growth Fiscal spending Social spending and Minimum wages upDomestic demand supports growth8
    • 9LONG TERM TRENDSASEAN’S BRIGHTENINGPROSPECTS
    • 10BIG TRENDS FAVOUR ASEAN Competitiveness gains Rising costs/currency in China Improving business environment Sino-Japan tensions  Japanese FDI Investment/GDP to rise  higher growth Share of global FDI to rise ASEAN companies regionalising  intra-FDI Infrastructure spending rising Domestic private investment crowded inLonger term upswing in place10
    • 11BIG TRENDS FAVOUR ASEAN (2) Rise of the laggards Philippines: best growth since 1990s Myanmar: opening up decisively Rising synergies from integration ASEAN Econ Community taking shape New forms of integration – Iskandar, MekongLonger term upswing in place11
    • 12COUNTRY THEMES
    • 13CHINA: ECONOMIC CHALLENGES Recovery losing momentum Policy uncertainty, weak exports, excess cap Restructuring exerts a drag Demographics: downsizing low-value Re-balancing underway Excessive investment, cost normalisation Speculative excesses unwinding Could crystallise financial shocks Policy action has contained extreme risksNear term challenges remain high13
    • CHINA: UNDERLYING ISSUESShift to lower but higher quality growth Huge capacity to manage challenges Massive fiscal resources to offset shocks Lower growth - deliberate policy aim Improve inequality, environment Don’t need high growth, labour shortages Politics: tensions under control Growing challenges: corruption, cronyism,… But system tried/tested, adjusting, adapting14
    • 15INDIA: OFF THE BOTTOM?Economy weak but bottoming out Short term positives Business and FDI confidence recovering Policy easing: rates cut, Rupee has fallen Supply side forces remain positive Laggard states rising: Bihar, Orissa, … Relatively good demographics Corporate re-engineering Rural income growth15
    • 16INDIA: POLITICS IS KEYA bumpy ride but still positive Political will for reform improved New strategy: boost supply side growth Competition among states helps Better governed get re-elected Political risks 2013 state elections, 2014 general election Fragmentation, vested interests, corruption16
    • 17INDONESIA: HOW SUSTAINABLE?Slightly faster growth in 2013 Domestic economy on firm footing Consumer Confidence Index rising Rising incomes, low rates Foreign investment rising Long term drivers Demographics: cheap, plentiful labour Huge consumer market Natural resources Urbanization 17
    • 18INDONESIA: LONGER TERMCan do better with clearer policy Constraints on even higher growth Doing Business: labour laws, corruption… Distortions/Inward looking policies Infrastructure: little progress Policy changes coming: fuel subsidies Risk is in financial/monetary dimension Monetary policy loose: inflation, current acct Rupiah under pressure18
    • 19INDONESIA: POLITICAL RISKS2014 Elections Approaching Positive: democracy entrenched Presidential: Prabowo leading Hunger for strong, decisive leader But he has an unfortunate history Deeper malaise in political system Institutions remain weak Vested interests capturing system Extremists’ violence tolerated19
    • 20MALAYSIA: MAKING A COMEBACK?Underlying economy better but politics? Near term: hit from global demand Exports weakening, commodity prices down Offset by election-related spending Structural improvements ETP roll-out boosting investment Reforms spurring FDI Still competitive in key niches New growth poles taking off Services liberalisation 20
    • 21PHILIPPINES: STEADYINGStable, looking better New regime: encouraging signs Aquino: fighting corruption, tax evasion Economy: foundations laid for rise Fiscal reforms  space for investment Remittances up, composition change BPO expanding, up value chain Infrastructure could add to this
    • PHILIPPINES: FOUNDATIONS LAID22
    • 23THAILAND: ROBUST PROSPECTSAfter 7 years of crisis, good upside Near term: domestic demand is key Pro-poor policies, min wage, rebates for cars Longer term: new surge of growth Massive infrastructure projects – USD73bn Greater Mekong Sub-Region taking off Regional diversification of growth Capacity to adjust to challenges Flexible, diversified, balanced economy23
    • 24THAILAND OUTLOOK(2)Will political risks disrupt outlook? Risks remain high in near term Two fundamental challenges Divided country – struggle for its soul King’s health and royal succession Inching grumpily to compromise But there could be shocks along the way Royal succession bears watching King’s long illness: Thais used to his absence
    • 25SINGAPORE: DECENT GROWTHSingapore is at a turning pointNear term: slow growth in 2013 Exposed hugely to global cycles Especially in tech products Restrictive policies: labour, real estate Offset by rising wages, constructionLonger term: steady 3% growth likely Centre of high growth ASEAN, India, … Highly competitive, critical mass 25
    • 26SINGAPORE: TOUGH TIMES?But some painful adjustments ahead Model of growth has to change Social safety nets need to expand Shift to productivity led growth Competitiveness - costs high Local companies forced to restructure Effects could be deflationary Major challenge for real estate Change in retirement funding system needed26
    • 27VIETNAM – RISING BUT …Supply side unleashed Demographics excellent Human capital New growth sources: Oil/gas, tourism, low-end manufacturing WTO entry has brought in FDI Chinese FDI is rising
    • 28VIETNAM – RISING BUT …(2)Major constraints remain Political: leadership infighting possible President vs PM, fight vs vested interests Financial vulnerability Higher propensity for inflation Small banks are a risk Business environment Corruption, State enterprises
    • 29RISKS TO MONITOR
    • 30MAJOR WILD CARD: MID-EASTKey nations facing unavoidable stresses Syria: civil war  spillovers Turkey, Lebanon, Iraq, Israel Iran nuclear: some Israeli action likely Saudis facing simultaneous challenges Neighbors: Yemen, Bahrain Succession & other internal stresses Egypt: long power struggle ahead Gaza: more violence likely30
    • 31IMPLICATIONS FORAUSTRALIA:Long term upsides are compellingBut this is a messy regionAustralia seems under-exposed toregion
    • 32CONCLUSIONS ON ASEAN Strategically, ASEAN is key Immediate neighbour Astride sea lanes of communication Great Game of influence: US vs China, … Political hang ups of the past receding New generation of leaders: opportunity ASEAN as a market for Australia: 660m + USD2.2tr (vs 23m and USD1.5tr) Growing around 6% pa
    • 33CONCLUSIONS ON ASEANCommon Interests Both of us need scale to compete Increased ASEAN-AU engagement helps Leverage off AU’s FTAs with ASEAN, S’pore… Areas of opportunity Urbanization, infrastructure: engineering Financial deepening: higher value services Healthcare Education
    • 34THANK YOU!