2017 will be better than you think, according to Deloitte, who released the first edition of their Voice of Asia series. Despite protectionist rhetoric from the US and gloomy forecasts from the IMF, three factors suggest global growth is about to surprise on the upside, with Asia leading the way.
Chris Richardson, Deloitte Australia Economist explained that “first, the global economy is finally normalizing after a decade of shocks, and a natural healing process is underpinning a more resilient recovery. Second, world trade is already lifting and the benefits of this are spilling into Asia. And third, Asia’s mega-economies of India and China, are increasingly being powered by consumer booms, acting as a stabilising force in their economies and for the region.”
Global economy stabilizing
Following 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, the global economy is finally normalizing.
Deloitte’s report predicts that global growth could in fact accelerate in 2017, with leading indicators already pointing to a lift in world trade. This will begin a virtuous circle in which global growth triggers an upsurge in trade which, in turn, fuels stronger growth. Asia’s major markets of China and India are also powering ahead and growth in most other countries in the region are strengthening, aided by a buoyant US economy.
Trade picking up
World trade volumes were damaged by successive crises and shocks in recent years, but leading indicators suggest volumes are ready to lift. Of course, there will still be risks in 2017, the largest of which may be the anticipated depreciation of the Chinese Yuan, which could affect the region’s nascent recovery.
“The continuing devaluation of the Chinese Yuan is necessary, though how the Chinese government manages it will be key. If it’s too aggressive, other Asian currencies may also fall – which could tempt the incoming US President to follow through on his protectionist rhetoric and hit trade,” said Sitao Xu, Deloitte China Economist.
“Asia is increasingly plugged into China-centric value chains. Any impact on China from yuan devaluation or other policy changes could have a significant knock-on effect on other Asian economies. However, in the long run, most economies in Asia will benefit if China succeeds in rebalancing its economy.”
While President-elect Trump is still largely an unknown quantity, his influence on global trade may be overstated. Indicators point to Asian and global trade strengthening, despite the rise of nationalistic and protectionist voices globally.
Asia’s mega-economies, China and India, are increasingly being powered by consumer booms, providing Asia with an additional line of defense if global growth isn't as good as expected and trade tensions boil over.
Sitao Xu, Deloitte China Economist commented, “A new and optimistic generation is taking the lead in driving the direction of their 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.”
The new generation of consumer in Asia will be a stabilizing force in their economies, meaning they are likely to play an anchor role for 2017, regardless of other developments.
“Our Voice of Asia report points to a range of reasons for confidence in 2017 – from growth to trade, culture to commerce – that underpin Asia's current and future prosperity. The interdependence of our region reflects what's possible in the year ahead, also shaping a more positive overall global outlook,” said Patrick Tsang, CEO, Deloitte China.