Saturday, July 24, 2010

Asia recovering well but risks ahead: GIC

Turmoil in Europe, protectionist pressures may hurt world economy

ASIA is recovering well from the financial crisis but there are still risks to the world economy, including the turmoil in Europe and protectionist pressures in many countries, according to Dr Tony Tan, deputy chairman of the Government of Singapore Investment Corporation (GIC).

Dr Tan told the Swiss Re Forum Singapore yesterday that the global recovery is likely to continue into the next year but at a more moderate pace.

But he cautioned that the rebound is 'fragile' and 'negative shocks could push the global economy towards a recession sooner than expected'.

And while growth prospects are much better for Asia than for the developed world, Dr Tan does not see Asia 'aggressively challenging' the global order, which has benefited the region for decades.

'Asian countries, including China, generally share the view that a multilateral, rules-based international order is critical to their long-term growth and development,' said Dr Tan. 'Asia's rise therefore is not inevitably a zero-sum geopolitical game where the US and Europe must decline as Asian countries grow.'

Dr Tan flagged the turmoil in Europe, saying that growth there should be weaker at around 1 per cent.

According to some analysts, there are growing signs that Europe's sovereign debt crisis is feeding through into the

euro-area economy in the form of a sharp rise in unemployment and a slowdown in manufacturing recovery.

Dr Tan warned that 'protectionism also remains a risk despite the recovery, given high unemployment and what seems to be, for the first time in many years, increasing tensions between American and European businesses and the Chinese policy environment'.

Dr Tan's comments come at a time when investors are increasingly upbeat about Asia's growth outlook, but less bullish about the global economy.

Earlier this month, the Asian Development Bank raised its 2010 forecast for aggregate growth across Asia - embracing East Asia excluding Japan, South-east Asia, South and Central Asia as well as the Pacific island economies - from 7.5 per cent to 7.9 per cent.

Yet Citigroup forecast global growth to rise 3.7 per cent this year and 3.3 per cent next year, trimming its projections by 0.1 percentage points for each year.

Dr Tan said the post-crisis global economic and financial environment will be affected by three major trends.

The first is that the developed world will take a 'long time' to fully heal from the crisis.

The second is the increasing importance of the emerging economies, anchored by Brazil, Russia, India and China.

And the third major trend, as Dr Tan describes it, will be 'increased vulnerability' to negative events, and 'extreme reliance' on government policies for both support and far- reaching reforms over the next few years.

Dr Tan said: 'The challenge for policymakers in many developed economies will be to convince markets that they have credible plans to ensure sustainable public finances over the medium to long term, while minimising the negative short-term impact on growth.'

In the emerging economies, policy-makers will have to deal with rising inflation and possible asset price bubbles, he said.

Source: Straits Times, 24 Jul 2010

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