2. robust economic recovery in the
To APEC CEO Summit 2010 region. Even in the West, corporate
profits are up, financial stocks have
participants, rallied at the prospect of substantive
reform, and deal-making is
accelerating. So, businesses are not
allowing a sluggish and uncertain
recovery to derail their plans – and
those plans invariably include
We live in challenging times. From changed strategic priorities in the
recession to recovery, from trade Asia-Pacific region.
imbalances to Basel III, from fiscal
stimulus to austerity and fiscal That most of the region defied
restraint – a dizzying menu of economic contraction in 2009 helped
unfolding and contradictory events vault Asian companies higher in
has fuelled uncertainty about the global rankings: the largest banks in
direction of the world economy and the world (by market cap) are based
how global business leaders should in China, for example, and Japan,
react. There’ s no question that the Korea and China combined are now
optimism we felt in January about home to nearly the same number of
the global recovery has been Fortune Global 500 companies as the
dampened by a turnaround that is US. It’ s clear that Asia-Pacific is
slower than expected. In North increasingly taking the lead.
America and Europe, unemployment
remains stubbornly high, housing Asian companies have taken up the
markets are stagnant, and fiscal mantle of leadership and are
deficits are raging. investing in growth initiatives.
Asia-Pacific investment in clean
Yet those developments don’ t energy rose in 2009, for example,
characterise the entire global while the economic crisis eroded
business story. Many Asian similar investments in Europe and
companies are doing well; riding a North America. These investments
1 The Asian engine for global growth
3. could simultaneously build the strong economic recovery in the
Asia-Pacific’ s position in a high region into sustainable growth
growth, value-added sector, and play globally.
a vital role in addressing global
climate change. I look forward to seeing you at the
Summit to discuss these and other
Over the past few months, my important topics.
conversations with CEOs have borne
out the growing focus on Asia as the Sincerely yours,
source of future growth. Some
companies are using the recession as
a pretext to accelerate their strategic
agendas. They are retooling to adapt
to new circumstances and taking
advantage of opportunities in
technology, cost containment, talent Dennis M Nally,
availability, and global markets that Chairman, PricewaterhouseCoopers
International
didn’ t exist before the recession.
This is particularly true here in Asia.
That’ s one reason why the theme of
the APEC CEO Summit – Asia-Pacific
as the Driving Force for Global
Growth: Seeking Prosperity after
Crisis – is so timely and important.
With a growing middle class of
consumers in Asia, new opportunities
will bloom in a variety of sectors,
from consumer electronics to natural
resources. APEC plays an essential
role in making sure trade and
economic policies in Asia translate
Over the past few months,
my conversations with CEOs have
borne out the growing focus on Asia
as the source of future growth
The Asian engine for global growth 2
4. forecast to deliver 2.4% growth in
The Asian engine for 2011, while the European Union will
crawl along at 1.5%. By comparison,
global growth growth across APEC (which includes
the US) will surge ahead at 3.8% in
2011. Driving growth in the region is
the powerful momentum generated
Just a few years ago, the US economy by China and the ASEAN economies:
was considered the locomotive of China is projected to grow 9.3%
global growth, with US consumption percent in 2011 while the six largest
said to fuel output from the rest of countries of ASEAN are forecast to
the world. Now, Asia-Pacific is in the grow between 4.3% and 7.1%. (See
lead position, while many other figure.) The only soft spot in
major economies still struggle with Asia-Pacific is Japan. Even still,
the after-effects of the economic Japan’ s 1.7% growth forecast for
crisis. 2011 seems like good news in that
it’ s more than twice the average
Based on the most recent estimates growth rate over the years
from PwC, the United States is 1992-2009.
Most countries in Asia Pacific boast much
stronger economic fundamentals and
significantly improved supervision of
their financial institutions
3 The Asian engine for global growth
5. What has made the economic recovery Such strong fundamentals were government balance sheets, building
in Asia-Pacific so fast and impressive? achieved largely as a result of an up foreign exchange reserves to
expensive and painful lesson: the self-insure against external shocks,
It’ s hard to make broad 1997-98 East Asian financial crisis intensifying supervision of financial
generalisations across such a large that caused near meltdown of the institutions, and deepening regional
and diverse region. Yet, some themes financial system in the region, and a economic integration. As a result,
do emerge in the aggregate, even if short but deep recession in some of when the global economic crisis
different countries vary in their fit. the key economies in Asia-Pacific. In broke out in 2008, the governments
And those themes may surprise those the wake of that crisis, governments in Asia-Pacific had enviably strong
accustomed to the view that in many Asia-Pacific countries fiscal positions; banks there had
developing countries have weak fiscal undertook a series of steps that, in robust balance sheets; central banks
discipline, loose supervision of retrospect, made the region as a in were in possession of trillions of
financial institutions, and insufficient whole better prepared for the global dollars of foreign exchange reserves
economic integration with one economic crisis relative to many to stave off financial panic; and
another. Notably, most countries in Western counterparts. integrated regional trade
Asia-Pacific actually boast much compensated for some of the lost
stronger economic fundamentals and Specifically, many Asia-Pacific demand from the United States and
significantly improved supervision of countries undertook combinations of Europe.
their financial institutions. measures including strengthening
Forecast GDP growth, 2011
World APEC EU
3.1% 3.8% 1.5%
Russia
Canada
4.5% 2.5%
US
2.4%
Korea Japan
China JAPAN
9.3% 3.9% 1.7%
SOUTH KOREA
Chinese Taipei
CHINESE TAIPEI
4.2%
Vietnam
7.1% Hong Kong SAR
THAILAND
4.5%
PHILIPPINES Mexico
Thailand 3.7%
4.3% Brunei Philippines
1.0% 4.8%
Malaysia
MALAYSIA
5.0%
Singapore Indonesia Papua New Guinea Peru
4.8% 6.2% 5.5% 5.7%
Australia
AUSTRALIA
3.3%
Chile
5.9%
New Zealand
3.2%
Source: IMF; PwC forecasts
The Asian engine for global growth 4
6. Putting f iscal houses in experiencing the same level of debtor
order pressure that countries such as
Asia-Pacific entered the global Greece and Ireland suffered.
economic crisis with relatively strong As growth returns, economies in
public finances. In 2004-08, fiscal Asia-Pacific are also reporting
balances in 10 major Asian improved fiscal positions. In fact,
economies (China, Hong Kong, India, on average, their fiscal deficits are
Indonesia, South Korea, Malaysia, shrinking at a much faster rate than
Taiwan, Singapore, Thailand, the those of many European economies.
Philippines) averaged -0.6%,
compared with a -3.2% average for Stashing rainy-day reserves
G-7 economies.*1 The overall level of One key lesson learned by
public debt is similarly low. policy-makers in the major
For example, public debt in China is economies in Asia-Pacific from the
under 20% of GDP (excluding East Asian financial crisis is that they
non-performing loans in the banking must have sufficient foreign exchange
system); Hong Kong has virtually no reserves to combat financial panic.
public debt, South Korea’ s public Thus, through tighter financial
debt is 24% of GDP, Indonesia’ s is management and pro-export policies,
27%, and Thailand’ s is 40%.*2 Asian economies have amassed more
The health of public finance allowed than enough reserves to prevent
governments in these countries to similar runs on their currencies.
implement substantial fiscal stimulus Hoarding low-yielding foreign
packages to revive growth in the exchange reserves is arguably not the
depth of the crisis without most productive way of investing
5 The Asian engine for global growth
7. scarce capital. But the crisis
vindicated stability-minded
policy-makers (even though they for Asia-Pacific has earned
the most part did not actually dip into
reserves to prop up their currencies):
a reputation as the world's
most Asian currencies remained most dynamic exporting zone,
remarkably stable over the past two
years. yet it is also becoming
Reining in household debt
a more closely integrated
Another source of vigour for the economic bloc
region is the overall low level of
household debt. In Asia’ s most
developed economies, such as Japan,
Korea and Taiwan, household debt is
roughly 70% of GDP (significantly
lower than in the US and parts of
Europe). In developing Asia, South Korea, Thailand and
household debt is much lower (due to Indonesia). Consequently, most
the limited availability of consumer financial institutions avoided
finance), roughly 10% of GDP in high-risk financial engineering and
China and Indonesia, for example.*3 deal-making before the crisis.
Low household debt levels in these Overall leverage was low, and direct
countries are one reason why exposure to risky financial
consumer demand throughout the instruments originated in the West
region has remained steady during was minimal. So, while many
the crisis. It also provides scope for Western financial giants enfeebled by
faster growth in consumer spending the crisis grew reluctant to lend,
in the coming years. access to credit in Asia-Pacific
remained largely unimpaired during
Keeping close watch the recession and recovery.
Long derided for having
‘under-developed’ (if not primitive) Working together
financial systems, countries in Asia-Pacific has earned a reputation
Asia-Pacific significantly improved as the world’ s most dynamic
the supervision of their financial exporting economic zone, with the
institutions following the short but US and Europe accounting for 46%
devastating East Asian financial crisis percent of Asia’ s total exports in
(which originated, in part, from terms of final demand.*4 Yet the *1 : ADB, Asian Development Outlook 2010 Update.
massive borrowing by poorly region is also becoming a more *2 : 2009 estimates from CIA World Factbook.
*3 : Economist Intelligence Unit.
supervised financial institutions in closely integrated economic bloc, *4 : ADB, Asian Development Outlook 2010 Update.
The Asian engine for global growth 6
8. thanks mostly to growth in
intra-regional trade and investment.
In the early 1990s, Asian economies
had few linkages with one another.
Since 1997, economic integration in
Asia (as measured by the correlation
of output) has approached
intra-European levels.*5 Greater
intra-Asia interdependence helped
cushion the region from the fall in
global trade during the crisis. Seen
another way, multinationals from Asia Among the short-term risks, the most
are confident of their growth prominent is that posed by large
prospects going forward – but they capital inflows (driven by low interest
expect their growth to come from rates and anaemic growth in
within the region. Four out of five developed economies). Such inflows
Asia-Pacific CEOs expect their Asian could fuel inflation, generate asset
operations to grow in 2010, while only bubbles, and put upward pressures
two of five believe their European on exchange rates. China, for
operations will expand.*6 An unsung instance, is now combating both
hero in Asia-Pacific’ s economic rising inflation and a significant real
integration is Japan. Even though the estate bubble. Trade protectionism is
Japanese economy has stagnated another risk. As trade surplus
since the early 1990s, large Japanese nations, often with artificially
companies have been pioneers in not under-valued currencies, countries in
only technological innovation at Asia-Pacific, especially export
home, but also expansion of off-shore powerhouses like China and South
investment and production. Korea, are facing a backlash from
their trading partners in the West.
Those economic fundamentals, A third risk is that of financial
products of both fortuitous contagion originating in renewed
circumstances (such as high savings financial panic caused by the debt
and restrained public spending) and crisis in the Eurozone. Asia-Pacific
effective government policies, have may be resilient, but it is not entirely
made most economies in Asia-Pacific immune to such external financial
resilient and dynamic. But to shocks.
maintain their momentum, they need
to address both short-term risks and Longer-term challenges for
long-term constraints on growth. Asia-Pacific are more daunting.
7 The Asian engine for global growth
9. Chief executives from the region are
simultaneously more concerned about
Asian economies have grown a greater range of threats to growth
accustomed to unlimited access to
the markets in developed economies. and more confident than their global peers
But their export-dependent growth
model has to change as part of the
global economic re-balancing
process. Exports to developed
Asia-Pacific can't lead the world
economies are bound to slow or fall, through a fragile recovery by
so Asian countries might choose to
boost domestic demand, especially itself; the region and the rest of
household consumption, to generate
the world have to agree to get on
new sources of growth. A second
long-term challenge is investment in the same track together
human capital. Asian countries have
done relatively well in their
accumulation of physical capital, but
to sustain growth and avoid the build large reserves are considered
so-called ‘middle-income trap’ unsustainable. In October, G-20
(a term referring to economic growth nations agreed to “pursue the full
stalling before per capita income range of policies conducive to
reaches US$ 10,000), broadly reducing excessive imbalances.”
speaking, the region might need to
boost productivity and build growth Indeed, the more Asia-Pacific’ s
on knowledge and innovation, not on economic clout grows, the more
investment in capital stock. attention there will be on its
integration in global economic
Asia-Pacific’ s leaders seem acutely governance. It is hard to imagine that
aware of these challenges, and are the world will regain its pre-crisis
certain they can manage them. Chief prosperity without leadership from
executives from the region, for the rising economic stars in
example, are simultaneously more Asia-Pacific. But Asia-Pacific can’ t
concerned about a greater range of lead the world through a fragile
threats to that growth and more recovery by itself; the region and the
confident than their global peers.*7 rest of world have to agree to get on
Lessons learned from past crisis have the same track together.
served the region well to date. Still,
the region may not be able to rely on
*5 : ADB, Asian Development Outlook 2010 Update.
the same tactics forever. For example, *6 : PwC 13th Annual Global CEO Survey (2010)
measures that allowed exporters to *7 : PwC 13th Annual Global CEO Survey (2010)
The Asian engine for global growth 8
10. Recent publications:
See the future
The old economic order is shifting. As the global economy recovers some
emerging markets are likely to grow faster than traditional economic powers.
At the industry level, these shifts are even more apparent with accelerating
capital flows, fundamental demographic changes, and the rise of state
capitalism reshaping the world map for many sectors.
PwC’s Global economic outlook
Developing economies carry on powering the growth of the global economy,
whilst some developed economies continue to exhibit weakness. Confidence
amongst consumers and businesses is weak, but increasing levels of exports
should create growth opportunities.
Economy briefs: BRIC
Economic growth for BRIC economies is likely to accelerate in 2010, boosted
by the global recovery as well as monetary and fiscal stimulus measures.
The key medium term challenge for the BRICs will be to gradually re-balance
growth towards domestic demand and away from reliance on exports to
developed markets - where only muted growth expected.
For our latest thinking, please see
www.pwc.com/researchandinsights
About PwC:
PwC firms provide industry-focused assurance, tax and advisory services to enhance value for
their clients. More than 161,000 people in 154 countries in firms across the PwC network share
their thinking, experience and solutions to develop fresh perspectives and practical advice.
We build relationships and use our expertise to work with our clients and our people to create
the value they are looking for.
9 The Asian engine for global growth
11. Contacts for further information:
Cynara Tan Masataka Mitsuhashi Sophie Lambin
Regional Marketing Director Executive Officer, Clients & Markets Global Thought Leadership & External Affairs
PricewaterhouseCoopers Ltd. PwC Japan PricewaterhouseCoopers International Limited
cynara.sl.tan@hk.pwc.com pwcjppr@jp.pwc.com sophie.lambin@uk.pwc.com
+852 2289 8888 +81 3 3546 8650 +44 20 7213 3160
The Asian engine for global growth 10