Deloitte Asia economic report downplays dangers of US-China trade war

15 April 2019

Deloitte has entered the US-China trade tension discussion with a round-up of Asia Pacific economic growth forecasts, stating it that would be a mistake to overstate the dangers.

Big Four professional services leader Deloitte has released its biannual Voice of Asia report exploring the economic prospects for the Asia Pacific region, concluding that it would be a mistake to overstate the dangers of US-China trade tensions – even if they do worsen. Should they do so, regional policy-makers have a number of economic reforms at their disposal, offering the potential for positive economic performance this year.

While the recent US delay to increased tariffs is a positive sign, the worst case scenario according to Deloitte is a continued impasse, given the region’s dependence on trade. “I am concerned that continued imposition of trade restrictions, and uncertainty about future trade relations, will have a chilling effect on investment, a negative impact on trade flows, and a disruptive impact on supply chains,” states Ira Kalish, Deloitte’s Chief Global Economist.

Despite the widely accepted view that a number of ASEAN economies are set to benefit from the US-China trade dispute, irrespective of its outcome, Deloitte describes the overall damage to the Asia Pacific region should tensions escalate through further miscalculation as substantial in the longer term, with most Asia Pacific economies likely to suffer. The best defence, the firm says, is a good offence.Deloitte Asia economic report downplays the dangers of US-China trade warKalish continues, “Absent a reduction in such tensions, the trade war could be an opportunity to implement reforms that boost productivity. It will also likely result in Asian countries seeking to boost trade relations with countries other than the United States.” Further, the report adds, Asia’s markets although losing ground last year did so from a position of strength – together with some recent positive developments for the regional economy.

In terms of levers, which will vary between Asian states according to their individual dependence on trade, the report suggests a number of available short-term options such as raising spending and/or cutting taxes and longer-term supply-side reforms, along with the potential for greater regional trade integration and other measures. Above all, the firm believes there is sufficient policy leeway for the region to contain the risks and remain economically resilient throughout 2019.

“Geopolitical friction and political personalities notwithstanding, the Asia Pacific economies have shown an ability to remain resilient despite the uncertainty surrounding the US-China relationship. In the environment of a continued slowing in global growth, the Asia Pacific economies – which are at vastly different stages of economic development – also have tools at their disposal to help themselves,” the report concludes.

Southeast Asia & Japan

Digging down briefly, outside of the Chinese economic forecast; growth in Vietnam is expected to maintain its pace following a 7.1 percent rise in GDP last year; Indonesia’s economy is looking at growth of around 5.2 percent; Thailand and Malaysia are tipped to remain steady at respectively just below 4 percent and at around 4 to 4.5 percent; the Philippines looks set to drop slightly to around 6.1 percent this year; and Singapore should maintain growth at slightly below its 3.3 percent 2018 rate thanks to its recent expansionary budget.

As a bloc; “The ASEAN economies will continue to benefit from supply side reforms to improve the ease of doing business, increasing their competitiveness. Lower oil prices will add to the positive outlook as most countries, apart from Malaysia, are net importers of oil and will benefit from the global growth resulting from easing oil prices. All this, together with a surge in spending on infrastructure, should strengthen the region’s resilience to external shocks.”

Meanwhile, the report states that the key issues for Japan in 2019 will centre on “US-China trade tensions, the drivers for Japan’s economic growth, the Bank of Japan’s ability to manage any larger-than-expected revaluation of the Chinese RMB, and what measures ‘Abenomics’ has in store for Japan’s economy,” adding that the country is provided some protection from the US-China trade war thanks to a strong footprint across several ASEAN economies.


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Economic boom will see 500 million Indians enter middle-class within a decade

18 April 2019

India’s economy is projected to grow at a base rate of 7.5% annually to 2030 according to an analysis from Bain & Company, with 500 million people moving into the middle- and high-income bracket over the period.

India has boomed in recent years, buoyed by a growing population and rapid economic development. Today the country is the world’s second largest in terms of population and sixth largest in respect to economic clout – with its economy still growing as one of the world’s fastest, at 7.5% in 2017. As incomes have risen, millions of citizens have moved up into new consumer categories.

An analysis from Bain & Company for the World Economic Forum shows that the future is also bright for the country according to long-term fundamentals, with a growing GDP of which around 60% is domestic private consumption, insulating it to a degree. There is also a healthy savings rate, at around 22% of income, and a large working age population, with a median age of 28 years.Evolution of household income in IndiaThe Indian economy is projected to enjoy strong growth in both the low and high case scenarios considered in the analysis. The base case will see economic growth stable at 7.5% on average until 2030, with just a 1% degree shift either side of this figure for the lower and the higher case scenarios. The effect of growth for the base case is an additional 500 million middle- and high-income earners added to the economy to 2030, with 50 million fewer in the low case scenario – pushing the share of upper-middle and high-income earners to 48% of the total population.

The firm’s projection of income growth would see consumption spending increase from $1.5 trillion to a massive $5.7 trillion by 2030. The growth is largely driven by a huge increase in the country’s middle class households, which are set to expand by 140 million, while the high-income earners are set to grow by 21 million – together a 51% increase on 2018. The middle class will see its share of total consumption increase from 30% to 47%, while around 25 million people will be rise out of poverty, with total poverty decreasing from 15% to 5% of the population.Indian population statisticsUnlike much of the developing world, India is ageing slowly, with a current median working population age of 28 which is set to rise only slightly, to 31, by 2030. The effect is that by 2030 the country will have the largest working age population at the youngest relative age. The rural population has also shrunk considerably since 2005, falling from 59% of the population to 51%.

The developed rural population has grown slowly over the same period, from 13% to 15%. The urban population meanwhile has increased from 28% of the population to 34%. Urbanisation is also set to continue. By 2030, the rural population is projected to decrease further, to 44%, with developed rural only growing by 1% in the period. Urban development is projected to hit around 40% by 2030.

The ongoing urbanisation and rising incomes will lead to further consumer shifts. With considerable changes to income distribution across India, growth in the middle class segment is expected to see around $2 trillion in incremental spending on affordable mid-priced offerings, while a further $2 trillion will be shifted to more premium product lines as consumers trade up.Consumer spending shifts in IndiaBain notes that buying behaviour will shift in line with both trading up as well as in new category spending. In food for instance, around 25% incremental spending will shift towards more premium goods, while around 32% will shift into health and organic food stuffs.  Personal care meanwhile is set to see considerable premiumisation, at 59% of incremental spending, as well as a broadening of product categories.

“India will continue on its path as one of the world’s most dynamic consumption environments, propelled by five major drivers: income growth; steady and dispersed urbanisation; favourable demographics; technology and innovation; and evolving consumer attitudes,” states the report. “As these drivers move India forward, many stakeholders have the potential to shape the country’s positive consumption future.”

It concludes: “The time is ripe for these stakeholders to come together and address head-on the most pressing societal challenges facing India today – skilling and job creation, socio-economic inclusion of rural India, and building a healthy and sustainable future for its citizens. Collaborative efforts to address these challenges will unlock the full potential of a young, connected and thriving nation, and establish India as a model for fast-growing consumer markets of the world.”