Europe Still Sick, Asia to Spearhead 2015 Economy
Maersk held ‘The Future of Global Trade’ symposium at its headquarters in Copenhagen on Tuesday, October 7, 2014. Simon Baptist, Chief Economist and Asia Regional Director at The Economist addressed the state of the global economy, regional powerhouses, stagnating markets as well as future drivers of global growth.
Referring to Europe as the “sick man” of the global economy, Baptist cited US output which is now 8% above its 2008 levels while the Eurozone is still 2% below. Industrial production in the Eurozone versus the US has also been a hindrance and contributed to the Eurozone’s “lost decade.” In terms of employment levels, “US flexibility and innovation saw jobs fall faster but also recover faster” said Baptist.
While pessimistic about the Eurozone, Baptist asserts that “Asia will do the heavy lifting in 2015,” assisted by China’s GDP, which is surpassing markets such as the US, India and ASEAN markets.
Despite wage increases, China’s position as a centre of low-cost manufacturing seems assured considering the simultaneous increases in productivity. In terms of competitive labour markets, India, Philippines, Peru, Poland and Taiwan are all countries noted for becoming increasingly attractive compared to China, whilst Bangladesh, Vietnam, Nigeria, Russia and Brazil are becoming less attractive.
When asked for comment on so-called ‘middle income’ markets such as the Philippines, Myanmar and Indonesia, Baptist singled out the Philippines as an underrated and overlooked market with significant potential. He cited the modest but steady growth rates of the Philippines while recognizing the significant infrastructure challenges.
For those with more of an appetite for a challenge, Indonesia was deemed a market to watch despite poor infrastructure and a challenging business environment. Despite these hurdles, predictions suggest Indonesia will become a global player in manufacturing by 2020.
Baptist was more pessimistic regarding Africa’s contribution to world trade. “Africa is emerging but still has a long way to go’ said Baptist. “Manufacturing growth is not taking place fast enough to cause a major transition.”
The African population will increase by 30% (or 330 million people) from 2013 to 2025, taking the population to 1.4 billion, or 18% of the global trade. Urbanisation and income growth will ensure the continued emergence of top tier and second tier cities over the coming decade. Baptist stated that these changes will boost demand for basic and higher value consumer goods and associated distribution and retail networks.
While exploring sources of future economic growth, Baptist indicated that developed countries are worried about restarting growth while emerging markets want to maintain rates of growth in the face of weak external demand and maturing economies.