AsiaPac – the engine room of growth
I saw an incredibly alarming statistic recently. Approximately 60% of working age people in Australia are currently on some form of government payment or welfare.
This statistic is compounded by the reality that the economic downturn driven by COVID is effectively a private sector recession. The public sector, in Australia at least and in all likelihood in most locations worldwide, are largely unaffected by the COVID led economic downturn in terms of their income or job security.
It’s this backdrop that I think it is timely for us to be reminded of one of the most significant observations in modern times.
The former Prime Minister of Great Britain, Margaret Thatcher, once stated that "the only problem with socialism is that eventually you run out of other people’s money".
This is a timely reality check for the world as we slowly reappear from our forced lockdowns.
The challenge to the world returning to productive growth lies as much in winding back the government stimulus injected into the world economies, as much as it lies in controlling the health impacts of COVID.
I’ve never been happier than I am now that I work in the Asia Pacific region. The Asia Pacific region has for the past several years been regarded as the growth engine of the global economy.
As the global economy recovers in the years ahead, the Asia Pacific region will play an increasingly important role in shaping new supply chains and the region will also be an incubator for specialist talent across several critical industry sectors.
Deloitte economic modelling predicts that there will be an 8% decline in GDP across the Asia Pacific region (compared to a 10% decline globally). Importantly, Deloitte economists predict that the Asia Pacific will see a moderate economic recovery in the second and third quarters of 2020, speeding up in the fourth quarter.
The Deloitte modelling suggests that the Asia Pacific is expected to see an earlier economic recovery than the United States and Europe, which will not see moderate recovery in their economies until the fourth quarter of 2020.
An indicator of the emerging importance of the Asia Pacific region is the critical role played by trade agreements with western developed nations.
Two of the world’s largest economies – the United States and the United Kingdom – will be looking to recast several trade agreements over the next few years.
This, coupled with the production relocation out of China to Southeast Asia and Australasia, will add a powerful growth engine to the region.
In my view this scenario will see a once-in-a-generation transformation of numerous Asia Pacific economies as the new world order post COVID materialises.
It’s sobering that this transformation of regional economies will play out against a backdrop of rising geo-political tensions. However, the need to sustain a growing affluent middle class in the Asia Pacific will likely outweigh the geo-political risks.
Now, more than at any time in our living memory, productive growth will be the policy imperative of our time. Unlike the Great Recession of 2008, we won’t have a growing economy in China to bail out growing government debt.
I anticipate that this scenario will see a tremendous amount of investment in the Asia Pacific region as western developed economies pursue growth in low cost markets which can also safeguard supply to their markets.
Eventually the river of money flowing from government must come to an end. The private sector must return to what it does best – generating wealth and financial security for the world.