Despite protectionist rhetoric from the US and gloomy forecasts from the International Monetary Fund, three factors suggest global growth is about to surprise on the upside, with Asia leading the way, according to Big Four accounting firm Deloitte.
"First, the global economy is finally normalizing after a decade of shocks, and a natural healing process is underpinning a more resilient recovery,” argues Chris Richardson, Deloitte’s Australia economist.
“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 stabilizing force in their economies and for the region."
Rising world trade
In the first edition of its Voice of Asia series, Deloitte 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.
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,” says Sitao Xu, Deloitte’s China economist. “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.”
"Asia is increasingly plugged into China-centric value chains,” Xu adds. “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.
China and India are also 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, says Deloitte.
Says Xu: "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,” concludes Patrick Tsang, CEO of Deloitte China. “The interdependence of our region reflects what's possible in the year ahead, also shaping a more positive overall global outlook."