the global new normal 1

Presentation to CEO Leadership Exchange 2012

23rd May 2012

Manu Bhaskaran

Centennial Group

The Global New Normal & Opportunities for Home Grown Global Champions

KEY TAKEAWAYS Despite risks, Asian surge will continue

Short term risks: Asia has not decoupled Expect bad news

Long term: changing landscape Global trends: Changing growth drivers

Asian trends: Asian Century or …?

Singapore as a major beneficiary Adjusting to challenges, beneficiary of trends

01-June-2012 Confidential 2

THE SHORT TERM:

WEAKER GROWTH, NO CRASH


SHORT TERM: RISKS DOMINATE

Caution needed

Eurozone: recession is unavoidable Still largest market; financial shocks too

China: worrying signs of sharp weakening Domestic/external demand falling

Japan: recovery from disasters but Nuclear power shutdown, sales tax fears

US: not strong enough to offset Job/income growth weak demand weak


THE LONG TERM TRENDS

GLOBAL ECONOMY


KEY CHANGES IN GLOBAL ARENA

The next decade

Slower global growth but higher quality G-3: deleveraging, not credit fuelled

China: demographics, up the value chain

A more volatile world Political stresses, energy prices, policy shifts

Changing structure of competitiveness Re-industrialisation of US

Definancialisation: smaller finance sector


SLOWER GROWTH G-3 economies’ adjustment

Deleveraging will take a few years Households have to raise savings rate

Governments cut budgets

Credit system will take time to heal Banks will be wary, borrowers too

Restrained investment To absorb excess capacity in housing etc


SLOWER GROWTH (2) China will slow significantly

Demographics – work force growth slows Migration of rural workers slowing

Labour costs rising – wages, social security

Shifting policy emphasis Quality not quantity: environment, inequality..

Removing hidden subsidies: energy, etc

Reaction to over-investment Especially in housing


PATTERNS OF GROWTH

Substantial volatility, stresses

Global finance: hard to reform

Developed: restructuring stresses

EMs: high growth cannot be smooth

Tighter competition for resources

Importance of resilience Balance of shock absorbers, amplifiers


CHANGING STRUCTURES


CURRENCY REALIGNMENTS

Role and value of US Dollar down

US Dollar - diminished Role: no more dominant reserve currency

Value down as USD holders diversify away

Asian currencies rise vs USD, EUR Winners: RMB, TWD, KRW, SGD, MYR

RMB will rise vs other Asians


CHANGING COMPETITIVENESS

Don’t underestimate the US

USD down, boosting domestic producers

New energy boom in US lower costs

Massive restructuring: efficiency gains

Clear signs of re-industrialization 1st refineries, petrochemical in decades

Chip plants – Intel

Products with high tech, high tpt costs,…


EMERGING MIDDLE CLASS Structural shifts in global demand

Asian middle class grows sharply over next 40 years


CHANGING STRUCTURES (2)

Population shifts

Migration within country Rapid pace of

urbanization From low growth

regions

Migration between

countries Legal and illegal Likely large in South

Asia


CHANGING STRUCTURES (4)

More Mega Cities in Asia

Top 10 Largest Asian Cities in 2025

Rank Country Urban agglomeration Population (millions)

1 Japan Tokyo 37.09

2 India Delhi 28.57

3 India Mumbai (Bombay) 25.81

4 Bangladesh Dhaka 20.94

5 India Kolkata (Calcutta) 20.11

6 China Shanghai 20.02

7 Pakistan Karachi 18.73

8 China Beijing 15.02

9 Philippines Manila 14.92

10 Japan Osaka-Kobe 11.37 01-June-2012 Confidential 15

THE LONG TERM TRENDS:

ASIAN CENTURY OR MIDDLE INCOME TRAP?


KEY DRIVERS OF ASIAN GROWTH

Complex web, mutually reinforcing

Dramatic change in mindsets New energies, entrepreneurs, open to ideas

Improving skills, human capital Education, improving health

New competitive advantage Eg offshoring, low-end manufacturing

Rising investment rate Domestic and foreign investment


NEW TRENDS IN FUTURE

Recent growth spurring other positives

Changing relativities China slows, India accelerates, …

Rise of laggards: Phils, Myanmar, Bangladesh

Changing structure of competitiveness China up value ladder; Indian manufacturing

Increasing integration ASEAN Economic Community, Sub-regional


MASSIVE URBANISATION

Asia’s urban population will nearly double by 2050

Competitiveness, social and political stability Depends on quality and

efficiency of urban areas

Important to manage significant risks Inequality, slums and

breakdown of social cohesion 01-June-2012 Confidential 19

PROJECTIONS


ASIAN CENTURY SCENARIO Asia will account for more than half of global output in 2050


MIDDLE INCOME TRAP

A majority of Asian economies still have to demonstrate their ability

Growth tends to become more capital and skill intensive

Middle Income Trap Unable to compete with low

income, low wage economies

Unable to compete with advanced economies in high skill innovations


SINGAPORE:

NEW PHASE OF ADJUSTMENT


SINGAPORE: NEAR TERM Restructuring for new phase of growth

Next 2-3 years: slowing, deflating Slow growth in G-3 will hurt

Labour policy more restrictive

Real estate cooling measures

Cost rise temporary, will adjust down Costs and SGD have risen, SGD won’t weaken

Restructuring like 2001-03: wages, rents down

Relocation of activities to Iskandar Region


SINGAPORE: LONG TERM

Major beneficiary of Asian trends

Unique positioning Unmatched as hub serving India, ASEAN

Major wealth management centre for Asia

ASEAN integration boosts S’pore hub Increased flow of goods, people, capital

Govt firm commitment to manufacturing Will do max to nurture sector


CONCLUSION Near term: risks from global slowdown

Asian growth virtually unstoppable The Asian Century scenario more likely

Long term trends Urbanisation, Middle Class/new rich,….

Increased integration, rise of the laggards

Singapore a major beneficiary Will adjust its costs down, remain competitive


Thank you

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the global new normal 1

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