16 Feb 2017
Trading Up to a Better Year
The world economy is finally emerging from a series of major shocks sparked by the 2008 global financial crisis. Chris Richardson, Deloitte Australia Economist and co-author of the firm’s new Voice of Asia insight series, explains why 2017 will be better than expected, with Asia leading the way.
Firstly, why are you so optimistic about 2017?
After years of disappointment, global growth may well be about to surprise on the upside, and despite the protectionist rhetoric issuing from the United States, it is Asia’s economies that are in the box seat for the coming year.
But that’s not what you’ve been hearing lately, because forecasters are still too gloomy. Whereas the International Monetary Fund still predicts only slow and fragile global growth, we see evidence that it could, in fact, accelerate, with leading indicators already pointing to a lift in world trade.
On what do you base that?
Asia’s major markets of China and India are powering ahead, and growth in most other countries in the region, including Hong Kong, is strengthening, while the US is throwing off recent gloom and notching up its best performance since 2014. At the same time, the Eurozone economy is edging up, and two of the world’s other biggest emerging markets, Russia and Brazil, are showing increasingly positive signs.
This good news shouldn’t be a surprise. It simply says that the global economy is finally normalising after a series of shocks that began with the global financial crisis and then, in quick succession, the Eurozone debt crisis and the geopolitical shocks in the Middle East, Europe and Asia.
Why do you believe Asia will lead the way out of the gloom?
The Asian century is shaping, cultivating and driving a dynamic future for business and society. With almost 60 per cent of the world’s population, the region has become a hub of diversity and innovation, and the continent is set to be central to better-than expected global growth in 2017.
The G3 economies, including Japan, are all maintaining or increasing their rates of recovery; China is stabilising, thanks to aggressive policy action; and large emerging economies, such as Indonesia, are poised to accelerate.
What if events don’t pan out as expected?
Regardless of what transpires elsewhere, Asia has another shield: if global growth isn’t as strong as we expect, or even if trade tensions threaten to boil over, Asia’s consumer base is in remarkably good shape.
A new and optimistic generation is driving the direction of their national economies: one that is technologically savvy, comfortable with the borderless consumerism of the global middle class, and yet imbued with the consumption-smoothing instincts of its parents and grandparents.
These new consumers are exactly what Asia and the world need right now. They’re inherently optimistic and incredibly open to innovation and new ideas. They’ll make enthusiastic importers as well as formidably competitive exporters. And yet, like consumers everywhere, they will be a stabilising force in their giant economies. That means they’re likely to play an anchor role for 2017 regardless of other developments.
Which countries do you see will lead this charge?
This is a story that plays out across Asia. The large economies of China in the north and India in the southwest are certainly key, but there is significant upside potential for every country in the region.
The rapid pace of growth in global trade has arguably been more important for them than any other region. The transformation in Asia post-World War II has been remarkable, starting with Japan and followed in quick succession by the “tiger” economies of Hong Kong, Singapore, South Korea and Taiwan, then China, and now other Southeast Asian economies, such as Malaysia, Thailand, Vietnam and Indonesia.
And trade remains Hong Kong’s lifeblood. If global trade continues to strengthen – and we think it will – then 2017 will play out as a good year for Hong Kong.
“Trade is the lifeblood not just of Hong Kong, but of the entire global economy. It is a barometer of economic health, an enabler of economic development, a facilitator of technology transfer and a mechanism for productivity improvements and income growth.”
You’ve said in your Voice of Asia series that trade matters – a lot. Why?
Trade is the lifeblood not just of Hong Kong, but of the entire global economy. It is a barometer of economic health, an enabler of economic development, a facilitator of technology transfer and a mechanism for productivity improvements and income growth.
It is also a sprinter. Global trade has grown half again as fast as the global economy over the past 50 years, doing better still – at twice the rate of economic growth – over the two decades from 1987 to 2007.
Nation by nation, the common thread in Asia’s movement through phases of economic development has, in general, been a re-orientation of each economy toward an outward, export-focused strategy. As our research shows, Asia now accounts for around one-third of global trade.