Is Asia the next growth engine? Probably, but not if rest of world doesn’t help. One region drags others down, e.g., euro banking problems. IMF: Growth.

Is Asia the next growth engine?• Probably, but not if rest of world doesn’t help.• One region drags others down, e.g., euro banking problems.• IMF: Growth rates in developing economies 5.75% in 2012-13, lower because of euro problems.• Asia still most rapidly growing: 7% plus, says IMF.

Global economy is slowing

Source: World Bank, January 2012

Developed economies fall behind

Trade volume is still large

Source: Standard Chartered Bank, 2012

“G7” vs. “E7”U.S.JapanGermanyU.K.FranceItalyCanadaSpainAustraliaSouth Korea

BrazilRussiaIndiaIndonesiaChinaMexicoTurkeySouth AfricaArgentinaSaudi ArabiaNigeriaVietnam

PWC, The World in 2050, January 2011

E7 will dominate?•

E7 to pass G7 in 2032?•

China passes U.S. in 2032?

India becomes No. 3

GDP rankings, 2009 & 2050U.S., $12.3 trillionJapan, $ 5.1 trillionChina, $ 4.9 trillionGermany, $ 3.4 trillionFrance, $ 2.7 trillionU.K., $ 2.2 trillionItaly, $ 2.1 trillionBrazil, $ 1.6 trillionSpain, $ 1.5 trillionCanada, $ 1.4 trillion

China, $51.2 trillionU.S., $37.9 trillionIndia, $31.3 trillionBrazil, $ 9.2 trillionJapan, $ 7.7 trillionRussia, $ 6.1 trillionMexico, $ 5.8 trillionGermany, $ 5.7 trillionU.K., $ 5.6 trillionIndonesia, $ 5.4 trillion

Constant 2009 dollars at market exchange rate. Source: PWC.

What could go wrong?

• Climate collapse.• Wars, civil and international.• Repeated global financial crises.• Domestic policy failures.• Godzilla returns.• Mayan calendar apocalypse.• Comet smashes into Earth.• All the stuff in the WEF chart.

What needs to go right?• Fiscal imbalances corrected.• Liquidity, but short of inflation.• Orderly growth of middle class in developing countries.• Maintenance of middle class in developed countries.• Banks deleverage, build capital.• International political, financial systems better coordinated.

Balancing the imbalances• Debtor nations need to save more.• U.S., Spain, Australia, Brazil.• Saver nations need to spend more.• China, Japan, Germany, Saudi Arabia.• Developed vs. developing in these groups.• Will U.S. start saving?• Can China start spending?

Banks need to recapitalize

Markets not taking on debt

Governments need to shed debt

U.S., Japan, Euro area debt

Deficits: the mirror image

U.S. money supply soars

U.S. trade balance sucks

Investment drives China economy

Source: Eurasia Group

Not so much in India

Source: World Bank

China, fast and slow

Source: Eurasia Group

A little inflation?

HSBC’s take on China• Lending spree is slowing.• Inflation is slowing.• Industrial production has slowed.• Export growth in single digits.• Government can now ease money supply, lower rates.• “Soft landing” a success?• Consumption still lags, needs to be higher.

India lags behind China•

Source: World Bank

HSBC’s take on India• Economic growth slowing.• Government has tightened to fight inflation.• Trade balance negative and growing.• Government spending too high.• High demand to fuel inflation.• GDP growth expected to remain below trend.

Learning to consume?

Welcome to the middle class

Source: OECD

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