Manu Bhaskaran: The New Normal in Asia

“Given the legacy of the global crisis and other changes since the crisis, the global economy will not return to what was normal pre-crisis; it will be a different world, a “new normal”. So, what will the “new normal” look like for Asian economies in this new phase of the global economy, in terms of their economic growth experience and the opportunities and challenges they will face?” Manu Bhaskaran tries to answer this question in the Edge Singapore…

Manu Bhaskaran

First, global economic growth will probably be a tad slower than during pre-crisis days. However, the growth of external demand — while not as exciting as pre-crisis — will still be robust enough for Asian exporters, provided they are willing to roll up their sleeves and adjust to a much more competitive global arena. With more competition from emerging economies as well as developed ones, Asian producers will have to work a lot harder than before to squeeze efficiency gains out of their production processes. They will have to learn to innovate a lot more and spend more to build brands and nurture talented staff.

Second, Asian countries will have to prepare for a much more volatile world. There will almost certainly be a series of geopolitical shocks in the Middle East while East Asia will be more unsettled, with episodic political tensions at the very least. The legacy of the global crisis could well mean severe fluctuations in capital flows, asset prices and currencies. Relatively small and highly open economies such as Malaysia and Singapore are inherently vulnerable and cannot escape these ructions, but so long as they build up their defences and maintain an armoury of potent policy weapons, they will be able to remain resilient.

Third, long-term interest rates will rebound from their current ultra-low levels soon, but may well remain below their pre-crisis averages for a considerable period given the prospects of lower global growth, subdued inflation and lower returns on capital because of more intense competition.

Fourth, investors should rethink the assumption that Asian currencies are set to appreciate against the major currencies over time. As competitive pressures grow, there will be disinflationary effects because pricing power will be squeezed. Moreover, large Asian economies such as China will have to endure tough reforms. In such a context, sustained currency appreciation does not make much sense.

In short, the outlook for Asia will be reasonably good but it will not experience supercharged economic growth. There will be a starker pattern of winners and losers — those countries that adjust and adapt effectively to greater competition and the unpredictable changes that new technologies bring will be the winners. There will be considerable financial volatility, with a chance of further financial shocks in an unreformed international financial system. Welcome to the new normal.

Read the entire article here…

Manu Bhaskaran

Manu Bhaskaran is Director of Centennial Group International and the Founding Director and Chief Executive Officer of Centennial Asia Advisors. Mr Bhaskaran is an expert on economic and political risk assessment and forecasting. Before joining the Centennial Group, he was Chief Economist for Asia of a leading international investment bank and managed its Singapore-based economic advisory group.

Mr. Bhaskaran is a well-regarded commentator on Asian financial and economic affairs, and has regular columns in business weeklies such as the Nikkei in Japan and the Edge in Singapore/Malaysia. He serves as Senior Adjunct Fellow, Institute of Policy Studies, Council Member of the Singapore Institute of International Affairs and Vice-President of the Economics Society of Singapore. Mr. Bhaskaran has a Master’s degree in Public Administration from the John F Kennedy School of Government at Harvard University and a Bachelor’s degree in economics from Cambridge University.  He has also qualified as a Chartered Financial Analyst. He is based in Singapore.

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