Blog Asian Economies Shrug Off Global Uncertainty
A key consideration for business and political leaders, investors and academics gathered at the Credit Suisse 20th Asian Investment Conference this week has been to consider the interplay of disparate economic trajectories, and consider if this is the beginning of a new era?
Europe is bracing for the impact of Brexit and a swathe of elections featuring populist and nationalistic figures campaigning on the promise of greater protectionism. In the US, President Donald Trump rode to victory on the promise of faster growth based on his own “America first” agenda.
Despite these challenges, the outlook for the global economy is generally on the upside.
“Our forecast is for a modest slowdown in global growth in the next three to six months, but reasonably good growth for the year as a whole,” said James Sweeney, Chief Economist and Head of Fixed Income Research at Credit Suisse.
In China, the second largest economy in the world, most indicators have seen increases over the past few months and the widespread expectation is for continuous growth after a mild slowdown in the short term.
“From a sequential-basis we expect a little bit of a slowdown in China driven by housing and manufacturing investment in the next quarter” said Sweeney.
Vincent Chan, Head of China Macro Research at Credit Suisse, said China is in a cyclical rebound powered by four pillars: political will to ensure reasonable growth; double digit growth in RMB-denominated trade; a pick-up in industrial investment and a later-than-predicted slowdown in property markets.
The optimistic forecast applies to much of Asia and emerging markets elsewhere.
India, the second most populous country in the world, also appears to be on solid footing for growth.
“India today is correctly considered to be a beacon of macroeconomic stability and it is still a place of tremendous excitement in terms of opportunity,” said Dr. Arvind Subramanian, Chief Economic Advisor to the Government of India.
Further east, the Philippines expanded 6.8% last year and the country’s Secretary of Finance Carlos G. Dominguez III said “this is only the beginning”.
“Over the medium-term we plan to grow at around 7%. This should bring us to the level of the higher middle-income economies. That pace of growth should enable us to bring down our poverty rates to 14% by 2020,” said Dominguez.
Optimism is returning to emerging markets. The 2017 Credit Suisse Emerging Consumer Survey found year-on-year improvements in consumer confidence across the EM8 markets of Brazil, China, India, Indonesia, Mexico, Russia, South Africa and Turkey.
The most immediate and significant shocks for the global economy may come from post-Trump US or post-Brexit Europe.
Interested observers of the US will find it necessary to separate noise (and tweets) from policy proposals. Proposed tax and structural reforms could have a positive impact, possibly closing the gap between 2% and 3% growth, said Columbia Business School Dean Glenn Hubbard. Tax reforms could boost growth by as much as 0.5% per year for the next decade and revive stagnant productivity growth.
On the other side of the Atlantic, the economic outlook for the UK and Europe is clouded by the Brexit process that officially kicked off on March 29, which will make the UK the first country to leave the EU.
“There is a risk that 65 million Britons may not get the same favorable outcome as 500 million Europeans,” said former UK Prime Minister the Rt. Hon. Sir John Major KG CH.
The stakes are particularly high for the UK. The country will have to renegotiate trade deals with Europe and 53 other countries with which the EU has trade deals. In turn, the EU will have to deal with the loss of its fastest growing economy in the group.
“This loss is going to weaken the EU, especially when you set it against the superpowers of the US and China,” said Sir John Major. “The impact is going to be slow burning over a long period of time.”