The document discusses the economic outlook for 2013, noting challenges ahead globally and for Asia. It finds that while the global economy is healing, it remains fragile. The US recovery is mixed and Europe faces fiscal drag and political risks. China is slowing but Asian resilience from structural factors may help offset global impacts. The outlook is cautionary, with early 2013 at more risk and the second half possibly improving as adjustments take effect, though geopolitical risks remain wild cards.

1. OUTLOOK 2013:
CHALLENGES AHEAD
The French Chamber of Commerce in Singapore
9th November 2012
Manu Bhaskaran
Centennial Group

2. IN A NUTSHELL
Mixed outlook in 2013: caution needed
 Global economy: healing but fragile
 US: Fiscal drag, over-stretched consumer
 Middle East risks at critical point
 Asia hurting from global impact
 Chinese economy slowing
 But Asian resilience from structural positives
 SE Asia is looking relatively better
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3. GLOBAL IMPACT ON ASIA:
DO NOT UNDER-ESTIMATE
THE DOWNSIDE RISKS
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4. KEY DRIVERS
Determinants of demand for Asian exports weak
Country % Outlook
world
GDP
US 23.1 Key housing, labour markets healing
BUT watch fiscal drag, savings rate
Eurozone 19.3 Fiscal drag; potential political stresses
China 9.3 Bottoming out
But imbalances, excesses remain risks
Japan 8.7 Recovery from disasters over, new drags
from power, politics
Other 8.3 Worse: clear signs of slowdown 4
emerging

5. SNAPSHOT OF GLOBAL ECONOMY
Despite market optimism, global economy looks fragile
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6. US: MIXED, REMAINS FRAGILE
Foundations for recovery built but …
 Some key areas recovered, not all
 +: Credit (weakly), housing (tentatively)
 +: Creative destruction/re-engineering
 -: Savings rate: still 3.5-4.5% not 8% needed
 But drags remain
 Fiscal drag in 2013 will be large
 Political gridlock
 Eurozone hurts
 Housing could be set back temporarily
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7. EUROZONE: PROGRESS BUT RISKY
Expect more episodes of stress
 Eurozoneactions limit tail risks
 Political commitment clearer
 Addressing flaws in original set up
 Firepower built up
 But too late to help economy
 Fiscal drag is strong, 2012-13
 Political backlashes are mounting
 Spain: secession fears raised, Catalonia
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8. JAPAN: NOT AS BAD
Some positives building, cyclical risks
 Short term: negative to Asia
 Strong Yen: BOJ has to act to weaken
 Exports down, power, politics uncertain
 Resilience from job market
 Long term positives are better
 Sales tax increase
 TPP will help open up Japan
 Relocation to SE Asia out of China/Japan
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9. GEO-POLITICAL RISKS
Key nations facing unavoidable stresses
 Syria: civil war  spillovers
 Turkey, Lebanon, Iraq
 Iran nuclear: some Israeli action likely
 Saudis facing simultaneous challenges
 Neighbors: Yemen, Bahrain
 Succession
 Internal stresses
 Egypt: long power struggle ahead
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10. BOTTOM LINE ON GLOBAL IMPACT
Early 2013 highly risky
 Mainly because US, EU at riskiest then
 2H 2013 could see bottoming out
 As the worst is over
 Liquidity and monetary policy not enough
 Fiscal drag, restructuring, politics
 Risk of unintended consequences rising
 Massive liquidity can also be destabilising
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11. PAN-ASIAN TRENDS
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12. ASIA IN GOOD SHAPE
Short term risks; long term positives
 Global slowdown will hurt in 1H13
 Trade, investment, commodity prices,…
 The real key is resilience: better
 Long term trends  surge continues
 Spillovers from China, India growth
 Investment/GDP to rise
 Urbanisation and rise of middle class
 More benefits from integration
 Rise of the laggards
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13. ASIAN RESILIENCE IS HIGH
Updated Resilience Index shows improved resilience
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14. COUNTRY THEMES
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15. CHINA: ECONOMIC CHALLENGES
Risks to growth remain high
 Activity indicators bottoming
 PMIs  rebound to weak growth
 Corporate sector feeling the hit
 Corporate cashflows weakening
 Anecdotal evidence of distress
 Inventory build up remains huge
 Cotton, coal, steel, homes, autos, copper…
 Policy response is key
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16. INDIA: OFF THE BOTTOM?
Economy risky but may bottom out soon
 Political risks
 More reforms but risks remain
 External pressures have built up
 Oil price fall would help
 External demand, capital flows
 Some positives
 Investment hurt by business worries
 Policy easing: rates cut, Rupee has fallen
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 Supply side forces remain positive 16

17. INDONESIA: HOW RESILIENT?
Some slowing inevitable
 Not immune to global slowdown
 Exports still falling
 Commodity prices down
 Domestic economy firm
 Consumer Confidence Index rising
 Imports of machinery, appliances, autos
up
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 Corporate risks rising 17

18. SINGAPORE: TOUGH TIMES AHEAD
Mix of cyclical and structural challenges
 Global slowdown will hurt further
 Exports, industrial production weakening
 Regional demand helps
 Malaysia, Indonesia
 Some domestic factors support growth
 Infrastructure spending: MRT, HDB,…
 Rising wages support consumer
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19. SINGAPORE: TOUGH TIMES?
But rising costs are a major headwind
 Labour policies tightening
 Rising wages, less flexibility
 Business costs high despite slowdown
 Companies have little respite
 Local companies forced to restructure
 Effects could be deflationary
 Real estate price pressures a challenge
 Policy tightening not enough?
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20. MALAYSIA: 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
 Key is politics
 Elections due by end April
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21. THAILAND: MOVING ON FINALLY?
After 7 years of crisis, some upside
 Near term: no escape from downside
 Manufacturing hit
 But policy helps: rate cuts, fiscal
spending
 Longer term: upsides
 Massive infrastructure projects
 Greater Mekong Sub-Region
 Will political risks disrupt this?
 Risks remain high in near term
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22. CONCLUSION
A tale of two halves
 Early 2013 could be tough
 Proliferation of global headwinds
 Later part of 2013 could be better
 As worst of fiscal drag over
 As painful adjustments finally produce results
 Wild card could be Mid East risks
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23. Thank you
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