1. The Global New Normal &
Opportunities for Home Grown
Global Champions
Presentation to CEO Leadership Exchange 2012
23rd May 2012
Manu Bhaskaran
Centennial Group
1

2. KEY TAKEAWAYS
Despite risks, Asian surge will continue
 Short term risks: Asia has not decoupled
 Expect bad news
 Long term: changing landscape
 Global trends: Changing growth drivers
 Asian trends: Asian Century or …?
 Singapore as a major beneficiary
 Adjusting to challenges, beneficiary of trends
2

3. THE SHORT TERM:
WEAKER GROWTH, NO CRASH
3

4. SHORT TERM: RISKS DOMINATE
Caution needed
 Eurozone: recession is unavoidable
 Still largest market; financial shocks too
 China: worrying signs of sharp weakening
 Domestic/external demand falling
 Japan: recovery from disasters but
 Nuclear power shutdown, sales tax fears
 US: not strong enough to offset
 Job/income growth weak  demand weak
4

5. THE LONG TERM TRENDS:
GLOBAL ECONOMY
5

6. KEY CHANGES IN GLOBAL ARENA
The next decade
 Slower global growth but higher quality
 G-3: deleveraging, not credit fuelled
 China: demographics, up the value chain
 A more volatile world
 Political stresses, energy prices, policy shifts
 Changing structure of competitiveness
 Re-industrialisation of US
 Definancialisation: smaller finance sector
6

7. SLOWER GROWTH
G-3 economies’ adjustment
 Deleveraging will take a few years
 Households have to raise savings rate
 Governments cut budgets
 Credit system will take time to heal
 Banks will be wary, borrowers too
 Restrained investment
 To absorb excess capacity in housing etc
7

8. SLOWER GROWTH (2)
China will slow significantly
 Demographics – work force growth slows
 Migration of rural workers slowing
 Labour costs rising – wages, social security
 Shifting policy emphasis
 Quality not quantity: environment, inequality..
 Removing hidden subsidies: energy, etc
 Reaction to over-investment
 Especially in housing
8

9. PATTERNS OF GROWTH
Substantial volatility, stresses
 Global finance: hard to reform
 Developed: restructuring  stresses
 EMs: high growth cannot be smooth
 Tighter competition for resources
 Importance of resilience
 Balance of shock absorbers, amplifiers
9

10. CHANGING STRUCTURES
10

11. CURRENCY REALIGNMENTS
Role and value of US Dollar down
 US Dollar - diminished
 Role: no more dominant reserve currency
 Value down as USD holders diversify away
 Asian currencies rise vs USD, EUR
 Winners: RMB, TWD, KRW, SGD, MYR
 RMB will rise vs other Asians
11

12. CHANGING COMPETITIVENESS
Don’t under-estimate the US
 USD down, boosting domestic producers
 New energy boom in US  lower costs
 Massive restructuring: efficiency gains
 Clear signs of re-industrialization
 1st refineries, petrochemical in decades
 Chip plants – Intel
 Products with high tech, high tpt costs,…
12

13. EMERGING MIDDLE CLASS
Structural shifts in global demand
 Asian middle class grows sharply over next 40 years
13

14. CHANGING STRUCTURES (2)
Population shifts
 Migration within country
 - Rapid pace of urbanization
 - From low growth regions
 Migration between countries
 - Legal and illegal
 - Likely large in South Asia
14

15. CHANGING STRUCTURES (4)
More Mega Cities in Asia
Top 10 Largest Asian Cities in 2025
Rank Country Urban agglomeration Population (millions)
1 Japan Tokyo 37.09
2 India Delhi 28.57
3 India Mumbai (Bombay) 25.81
4 Bangladesh Dhaka 20.94
5 India Kolkata (Calcutta) 20.11
6 China Shanghai 20.02
7 Pakistan Karachi 18.73
8 China Beijing 15.02
9 Philippines Manila 14.92
10 Japan Osaka-Kobe 11.37
15

16. THE LONG TERM TRENDS:
ASIAN CENTURY
OR
MIDDLE INCOME TRAP?
16

17. KEY DRIVERS OF ASIAN GROWTH
Complex web, mutually reinforcing
 Dramatic change in mindsets
 New energies, entrepreneurs, open to ideas
 Improving skills, human capital
 Education, improving health
 New competitive advantage
 Eg offshoring, low-end manufacturing
 Rising investment rate
 Domestic and foreign investment
17

18. NEW TRENDS IN FUTURE
Recent growth spurring other positives
 Changing relativities
 China slows, India accelerates, …
 Rise of laggards: Phils, Myanmar, Bangladesh
 Changing structure of competitiveness
 China up value ladder; Indian manufacturing
 Increasing integration
 ASEAN Economic Community, Sub-regional
18

19. MASSIVE URBANISATION
Asia’s urban population will nearly double by 2050
 Competitiveness, social
and political stability
 Depends on quality and
efficiency of urban areas
 Important to manage
significant risks
 Inequality, slums and
breakdown of social
cohesion
19

20. PROJECTIONS
 Singapore’s strengths are durable
20

21. ASIAN CENTURY SCENARIO
Asia will account for more than half of
global output in 2050
21

22. MIDDLE INCOME TRAP
A majority of Asian economies still have to
demonstrate their ability
 Growth tends to become more
capital and skill intensive
Middle Income Trap
 Unable to compete with low
income, low wage economies
 Unable to compete with advanced
economies in high skill
innovations
22

23. SINGAPORE:
NEW PHASE OF ADJUSTMENT
23

24. SINGAPORE: NEAR TERM
Restructuring for new phase of growth
 Next 2-3 years: slowing, deflating
 Slow growth in G-3 will hurt
 Labour policy more restrictive
 Real estate cooling measures
 Cost rise temporary, will adjust down
 Costs and SGD have risen, SGD won’t weaken
 Restructuring like 2001-03: wages, rents down
 Relocation of activities to Iskandar Region
24

25. SINGAPORE: LONG TERM
Major beneficiary of Asian trends
 Unique positioning
 Unmatched as hub serving India, ASEAN
 Major wealth management centre for Asia
 ASEAN integration boosts S’pore hub
 Increased flow of goods, people, capital
 Govt firm commitment to manufacturing
 Will do max to nurture sector
25

26. CONCLUSION
 Near term: risks from global slowdown
 Asian growth virtually unstoppable
 The Asian Century scenario more likely
 Long term trends
 Urbanisation, Middle Class/new rich,….
 Increased integration, rise of the laggards
 Singapore a major beneficiary
 Will adjust its costs down, remain competitive
26

27. THANK YOU!
27