Outlook 2013: Challenges Ahead
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The French Chamber of Commerce in Singapore9th November 2012
Manu BhaskaranCentennial Group
OUTLOOK 2013:
CHALLENGES AHEAD
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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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GLOBAL IMPACT ON ASIA:
DO NOT UNDER-ESTIMATE THE
DOWNSIDE RISKS
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KEY DRIVERSDeterminants of demand for Asian exports weak
Country % world GDP
Outlook
US 23.1 Key housing, labour markets healingBUT watch fiscal drag, savings rate
Eurozone 19.3 Fiscal drag; potential political stresses
China 9.3 Bottoming outBut imbalances, excesses remain risks
Japan 8.7 Recovery from disasters over, new drags from power, politics
Other emerging
8.3 Worse: clear signs of slowdown
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SNAPSHOT OF GLOBAL ECONOMY
Despite market optimism, global economy looks fragile
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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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EUROZONE: PROGRESS BUT RISKY
Expect more episodes of stress Eurozone actions 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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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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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 ahead9
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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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PAN-ASIAN TRENDS
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ASIA IN GOOD SHAPE
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
Short term risks; long term positives
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ASIAN RESILIENCE IS HIGH
Updated Resilience Index shows improved resilience
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COUNTRY THEMES
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CHINA: ECONOMIC CHALLENGES
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
Risks to growth remain high
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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
Supply side forces remain positive16
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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
Corporate risks rising Inflation risks remain but under control
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SINGAPORE: TOUGH TIMES AHEADMix 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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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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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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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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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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Thank you
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