Tuesday, July 6, 2010

Asia growth on track despite Western woes

Infrastructure works, personal spending enough to carry the day, says DBS chief

(SINGAPORE) Asia's robust growth will be affected but not derailed by what looks increasingly like a stalling of growth in the US and Europe, said DBS chief executive Piyush Gupta.

Infrastructural development and personal consumption in Asia will carry the region and take up much of the slack from the global economies, he said yesterday.

Asia today is pretty much like the US in the 1950s, with governments in the region spending on building dams, railroads and roads and there is also the rise of the middle classes, he said.

'Asian infrastructure investment is where it was in the US in the 1950s.'

Mr Gupta was speaking last night at the Singapore Indian Chamber of Commerce & Industry-DBS awards dinner.

'Asia's infrastructure spending will pump growth rates up. Between infrastructure spending and personal consumption, Asia will be able to generate its own demand.'

Between now and 2020, infrastructural spending is estimated to come to US$8 trillion.

Wealth creation in Asia is the fastest growing with reports of more millionaires being formed in the region than anywhere else in the world, he said. 'Asia is generating more of our own demand.'

The tipping point came this year, he said.

According to DBS economists, 20 years ago, for every dollar incremental growth in the US, Asia contributed less than 50 cents.

But today, for every dollar the US puts out, Asia will put out 102 cents, said Mr Gupta.

Asia's consumption rate is up 70 per cent compared with sub-one per cent in the rest of the world, he noted. 'While I am not overly sanguine of the global economies and credit expansion, I am sanguine about Asia.'

Last year, 138 Asian corporates were among the Fortune 500 companies and they were the fastest growing ones, he said

As for the silver tsunami which will hit Japan, China and Singapore, the ageing population will create demand and business opportunities in areas such as health care and financial planning and other related services, he said.

There are political risks to doing business in many Asian countries as they face challenges in the growing disparity between the poor and the rich, Mr Gupta said in answer to a question from the floor.

China faces significant challenges in managing its social equity, between its richer coastal areas and the poorer inland economies, and increasing pressure on wages, he said.

The financial crisis has also made borrowing in US dollars more expensive for Asian countries.

'Asian economies are dollarised significantly,' he said.

For instance, Chinese banks are borrowing US dollars in Hong Kong to lend onshore, pushing up US interest rates there by 100 basis points over the wholesale Libor rate, he said.

Indonesian banks are facing a similar situations, he said.

Source: Business Times, 6 Jul 2010

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