ASIA will replace the United States as the largest source of new economic demand next year, making it the world’s biggest growth driver.
That means US demand will be less important as a growth source, said DBS Bank managing director of economic and currency research David Carbon.
Other economists have warned that a slower- growing US means a slower-growing Asia. But with more new demand coming from the region to fuel industrial production and exports in countries like Singapore, Asia should be able to grow rapidly – perhaps even faster than expected – next year, even if the US economy remains weak.
‘This is the biggest structural change in the global economy today,’ Mr Carbon said. In numbers, it means that Asia will generate US$1.02 (S$1.42) worth of new demand for every dollar generated by the US.
In 1990, the US put out twice as much new demand as Asia. But over time Asia, driven by China, has increased its role.
Next year ‘is the cross-over year…Asia puts out more new demand than the US does. And by doing that it, by definition, becomes the biggest driver of global growth in the world’, Mr Carbon said. He expects Asia to grow 6 per cent next year, with China leading the way with 9.6 per cent. Singapore is projected to grow 6 per cent.
However, the V-shaped recovery is likely to level out at the top, giving way to a ‘square root’ shape, he said.
This shift to Asia in demand will have other effects, with money flowing to Asia out of the slower-growing US and European economies and more investments from businesses going to Asia, which will serve to narrow the current account surpluses in Asia and spur further growth.
‘Instead of global imbalances slowing Asia’s growth, Asia is going to grow more quickly and that will help to narrow these global imbalances.’
Mr Carbon said worries that a removal of policy stimulus will derail the recovery are exaggerated. China’s recovery has been largely independent of its 4 trillion yuan (S$815.6 billion) stimulus package.
The increased Asian demand is also being driven by private spending rather than the government dollar, he said. But he added that China needs to find a better balance between its investments and private consumption in driving demand.
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