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Presentation to CEO Leadership Exchange 2012
23rd May 2012
Manu Bhaskaran
Centennial Group
The Global New Normal & Opportunities for Home Grown Global Champions
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
01-June-2012 Confidential 2
THE SHORT TERM:
WEAKER GROWTH, NO CRASH
01-June-2012 Confidential 3
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
01-June-2012 Confidential 4
THE LONG TERM TRENDS
GLOBAL ECONOMY
01-June-2012 Confidential 5
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
01-June-2012 Confidential 6
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
01-June-2012 Confidential 7
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
01-June-2012 Confidential 8
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
01-June-2012 Confidential 9
CHANGING STRUCTURES
01-June-2012 Confidential 10
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
01-June-2012 Confidential 11
CHANGING COMPETITIVENESS
Don’t underestimate 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,…
01-June-2012 Confidential 12
EMERGING MIDDLE CLASS Structural shifts in global demand
Asian middle class grows sharply over next 40 years
01-June-2012 Confidential 13
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
01-June-2012 Confidential 14
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 01-June-2012 Confidential 15
THE LONG TERM TRENDS:
ASIAN CENTURY OR MIDDLE INCOME TRAP?
01-June-2012 Confidential 16
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
01-June-2012 Confidential 17
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
01-June-2012 Confidential 18
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 01-June-2012 Confidential 19
PROJECTIONS
01-June-2012 Confidential 20
ASIAN CENTURY SCENARIO Asia will account for more than half of global output in 2050
01-June-2012 Confidential 21
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
01-June-2012 Confidential 22
SINGAPORE:
NEW PHASE OF ADJUSTMENT
01-June-2012 Confidential 23
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
01-June-2012 Confidential 24
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
01-June-2012 Confidential 25
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
01-June-2012 Confidential 26
Thank you
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01-June-2012 Confidential 27