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Showing posts with label World economy. Show all posts
Showing posts with label World economy. Show all posts

Tuesday, January 31, 2023

China's Rise to Economic Superpower, economy stands out in global arena

China's Rise to Economic Superpower 

World Economy

As the world still grapples with supply-chain backlogs (partially) caused by China’s strict Covid-19 policies, it has become painfully obvious how vulnerable the global economy is to national or even regional disruptions, especially if they happen in China, the world’s number one supplier of goods.

Over the past few decades, China has grown to become the world’s manufacturing hub and largest goods exporter by a significant margin, turning it from emerging market into economic superpower. According to estimates from the IMF’s latest World Economic Outlook, the country will account for 18.8 percent of the world’s GDP based on purchasing power parity (PPP). That’s up from just 8.1 percent two decade ago, when both the United States and the EU were miles ahead of China’s economic output.

Over the past 20 years, both the U.S. and the European Union have seen their economic superiority challenged, as new powers, such as China, India and others have emerged. While the U.S. saw its share of global GDP decline from 19.8 to 15.8 percent between 2002 and 2022, the EU’s share dropped from 19.9 to 14.8 percent of the same period.

The gap between China, the U.S. and the EU will likely widen over the next few years, as the economic outlook for the latter two is cloudy with a chance of recession, while China is expected to continue growing at mid-single-digit growth rates.

By Felix Richter 

Felix Richter
Data Journalist
felix.richter@statista.com +49 (40) 284 841 557

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China’s economy stands out in global arena 

 

Steady trade: Workers use computer terminals to monitor remote operations at a container port in Tianjin. China has now become a major trading partner for more than 140 countries and regions, with its total trade of goods up 7.7% y-o-y in 2022, topping the world for six consecutive years. — AP 

 Annual average growth of 4.5% between 2020 and 2022, outpacing the world average of around 2%

BEIJING: In its three-year-long fight against Covid-19, China posted outstanding results in economic development and epidemic control, reinforcing its status as a leading engine for the global economy.

From 2020 to 2022, China’s economy posted an annual average growth of 4.5%, outpacing the world average of around 2%, according to Yuan Da, director of the Department of National Economy of the National Development and Reform Commission.

In 2022, the economy grew 3% year-on-year (y-o-y) to a record high of 121 trillion yuan (US$18 trillion or RM76.3 trillion), with the increment standing at 6.1 trillion yuan (RM3.8 trillion), equivalent to the economic aggregate of a medium-sized country.

It also marks a new and higher level in terms of economic aggregate after the Chinese economy topped the thresholds of 100 trillion yuan (RM62.5 trillion) and 110 trillion yuan (RM68.8 trillion) in 2020 and 2021, respectively – maintaining its position well as the world’s second-largest economy.

Analysts attributed the hard-won results to the country’s effective coordination in fighting Covid-19 and its economic fallouts simultaneously.

Thanks to effective virus control and timely pro-growth policies, China’s economy has quickly emerged from the epidemic-induced slump and consolidated its recovery momentum for a brighter outlook.

To cope with the constantly evolving epidemic situation, China has been dynamically optimising its control measures while enhancing the treatment and vaccination capacity, effectively safeguarding the lives and health of its 1.4 billion population at minimum costs.As of Jan 13, 92.9% of the Chinese population has been fully vaccinated, with more than 90% of people above 60 covered by vaccination.

With Omicron much less pathogenic and deadly, China, in December last year, announced ten new measures to lift numerous Covid-19 restrictions. On Jan 8, its management of Covid-19 was officially downgraded from Class A to Class B.

Less than one month after the optimisation of Covid-19 response measures in December 2022, China reported declining numbers of fever patients and critical Covid-19 cases as both had passed the peak. In the just-concluded Spring Festival holiday, China’s consumption made a strong comeback.

During the week-long holiday, sales revenue of China’s consumption-related sectors rose 12.2% from the same holiday period in 2022. Its cinemas sold 129 million tickets, generating a whopping revenue of 6.76 billion yuan (RM4.2bil), the second highest-grossing to date.

Wen Bin, the chief economist with China Minsheng Bank, said that warming demand at home would propel the turnaround in the Chinese economy this year and estimated the country’s full-year gross domestic product growth at around 5.5%.

Aside from the overall economic growth, China also made significant headway in maintaining consumer price stability, guaranteeing food and energy security, and improving people’s livelihoods.

In 2022, China’s consumer price index grew by 2%, a fraction of the increases reported in the United States, the eurozone and Britain. It is also lower than those of other emerging economies.

Amid a global food crisis, the country has secured a bumper harvest for the 19th year in a row, with its grain output at about 686.53 billion kg in 2022, up 0.5% from 2021.

A total of 11.86 million, 12.69 million, and 12.06 million new urban jobs were created in 2020, 2021, and 2022, respectively, all surpassing the targets set for each year.

Despite the gloomy global investment environment, China remains one of the most attractive investment destinations in the world.

Foreign direct investment in the Chinese mainland, in actual use, expanded 6.3% y-o-y to 1.23 trillion yuan (RM768.8bil) in 2022.

China has now become a major trading partner for more than 140 countries and regions, with its total trade of goods up 7.7% y-o-y in 2022, topping the world for six consecutive years.

Recently, multiple international investment banks and financial institutions, including Morgan Stanley, Goldman Sachs, HSBC, Barclays, and Natixis, have upwardly revised their forecast for China’s economic growth rate in 2023, betting on the country’s rosy prospects and strong resilience. — Xinhua

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Monday, September 10, 2018

Be ready – financial crisis is near

Prepare Now for the Next Financial Crisis

THE financial crisis affecting developing countries arrived in full-scale fashion in our region last week when the Indonesian economy experienced shocks reminiscent of the Asian crisis 20 years ago.

With the crisis coming so close to home, it is time to contemplate what may unfold in the near future and list measures to respond to each scenario, so that we are not taken by surprise.

The agreement reached with Singa­pore to postpone construction of the Kuala Lumpur-Singapore high-speed rail (HSR) project until end-May 2020 (with Malaysia paying S$15mil [RM45.1mil] in cost) was an achievement. It allows us a gap of two years before having to meet the mega project’s large expenses.

The next couple of years will be crucial, as the country will be in the midst of managing the “perfect storm” of servicing the trillion-ringgit government debt and preventing the government deficit from ballooning, while facing the challenges of the emerging global financial crisis.

In this tight situation, every billion ringgit counts; indeed every single ringgit counts.

As more discoveries are made of missing money, whether due to the 1MDB scandal or unpaid tax refunds, there is increasing pressure to save money and cut costs to avoid wider deficits.

So the HSR’s two-year deferment helps a lot. It may be like kicking the can down the street, but hopefully, the situation will improve by the end of the two years to allow the can to be picked up, especially if during the period, ways are found to cut the overall cost of the project.

Other projects too have to be scrutinised. Besides the East Coast Rail Link and Trans Sabah gas pipeline projects, there are many other projects whose costs have to be examined, and whose implementation can be postponed or cancelled.

Besides the scourge of overpricing and kickbacks, there is the over-riding concern that a financial crisis has to be averted.

Indonesia’s Energy Minister last week announced that energy projects worth US$25bil (RM103.64bil) and representing half of President Joko Widodo’s grand electricity programme, would be postponed or restructured. This is to save US$8bil (RM33.1bil) to US$10bil (rm41.45bil) on imports for the projects.

Indonesia is also raising tariffs to 10% on over 1,000 goods in a move to reduce the import bill.

These are some measures the country is forced to take as its economy enters full crisis mode. It could even face a meltdown of the 1998-99 scale. The rupiah fell to almost 15,000 per US dollar, the lowest point since the 1998 crisis.

Indonesia is vulnerable to a financial crisis due to its dual deficits (in the current account and government budget), large external debt and high foreign ownership of equity and government bonds.

Indonesia is caught in a vicious cycle, which is typical when financially liberalised countries follow orthodox fire-fighting policies. When the markets perceive that the external reserves could be insufficient to pay for imports, service debts and absorb potential capital outflows, the currency depreciates.

The perception sparks a self-fulfilling prophecy. The fall in currency makes it more difficult for the government and companies to service foreign loans, and also prompts investors to pull out their money.

In such a situation, the government raises the interest rate to incentivise investors to retain their money in the country. Indonesian interest rates have risen by 1.25 percentage points since May.

However, the side effect is that homebuyers and companies find it more difficult to service their mortgage and business loans. Credit slows down, and so does the economy. This in turn causes the currency to drop further, prompting more rounds of interest rate increases, which lead to loan defaults and bankruptcies.

The economy goes into recession, leading to more capital outflows, including by local people. The currency drops again, recession deepens, and the cycle continues.

Indonesia is still at the start of this cycle. Hopefully it will find the policy tools, including unorthodox ones that work, to avoid a long stay in the spiral. But Indonesia is by no means alone. Argentina and Turkey are deep in their crises, and more and more countries are suffering the contagion effect, including South Africa, India, Iran and the Philippines.

Following the 2008-09 global financial crisis that especially hit the United States and Europe, many hundreds of billions of dollars rushed to emerging markets, including Malaysia, in search of higher yields. The liquidity was created by quantitative easing (government pumping money into the banking system) and low interest rates in the US and Europe.

Now the funds are leaving the emerging economies and returning to the US. This is due to the US policy reversing to quantitative tightening, the rise in its interest rates, and fears of an emerging market crisis and a worsening trade war.

Developing countries vulnerable to currency decline, a pull-out of funds and a crisis are those with significant current account deficits, government budget deficits and debts; low foreign reserves; large external debt; and high foreign ownership of local bonds and equities.

Malaysia is so far safe but it is wise not to be complacent. It is not easy to escape contagion once it spreads.

A few warning signs have appeared, such as a narrowing of the current account surplus and significant portfolio investment outflows (both in the second quarter), and a weakening of the ringgit, besides the larger than previously reported government debt and the need to prevent the budget deficit from increasing.

The old Scout motto, “Be Prepared”, comes in handy at times like this. It is good to prepare now for any eventuality, so as to avoid being caught by surprise.

Credit: Martin Khor Global Trends The Staronline

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Thursday, February 6, 2014

Southeast Asia's Boom Is a Bubble-Driven Illusion?



Since the Global Financial Crisis, Southeast Asia has been one of the world’s few bright spots for economic growth and investment returns. With its relatively young population of 600 million and its growing middle class, Southeast Asia has been the scene of a modern-day gold rush as international companies clamor to get a piece of the action. Unfortunately, my research has found that much of this region’s growth in recent years has been driven by ballooning credit and asset bubbles – a pattern that is also occurring in numerous emerging economies across the globe.

In the past few months, I have published reports about the growing bubbles in Singapore, Malaysia, Thailand, the Philippines, and Indonesia, and I will use this report to explain the region’s economic bubble as a whole. My five Southeast Asian country reports have generated quite a bit of interest and controversy, and were read nearly 1.3 million times, and were publicly denied by the central banks of Singapore, Malaysia, and the Philippines.

Ultra-low interest rates in the U.S., Europe, and Japan, combined with the U.S. Federal Reserve’s $3 trillion-and-counting quantitative easing programs caused a $4 trillion torrent of speculative “hot money” to flow into emerging market investments from 2009 to 2013. A global carry trade arose in which investors borrowed significant sums of capital at low interest rates from the U.S. and Japan for the purpose of purchasing higher-yielding emerging market investments and earning the difference. The surging foreign demand for emerging market investments created bubbles in those assets, especially in bonds. The emerging markets bond bubble resulted in record low borrowing costs for developing nations’ governments and corporations, and helped to inflate dangerous credit and property bubbles across the emerging world.

The flow of hot money into Southeast Asia after the financial crisis caused the region’s currencies to rise strongly against the U.S. dollar, such as the Singapore dollar’s 22 percent increase, the Philippine peso and Malaysian ringgit’s 25 percent increase, the Thai baht and Vietnamese dong’s 30 percent increase, and the Indonesian’s rupiah’s 50 percent increase, which has been subsequently negated now that foreign capital has begun to flow out of Indonesia’s economy.

The post-Crisis bond bubble helped to reduce government bond yields in Singapore, Thailand, Indonesia, Malaysia, and the Philippines (click links for charts), while foreign institutional holdings of many Asian sovereign bonds increased dramatically:

Foreign Holdings Of Malaysian Bonds

Foreign direct investment into several Southeast Asian countries - particularly Singapore, Malaysia, and Indonesia – immediately surged to new highs after the Global Financial Crisis.
Here’s the chart of Singapore’s FDI (net inflows, current dollars):

SingaporeFDI2

Malaysia’s FDI (net inflows, current dollars):

Malaysian Foreign Direct Investment

Indonesia’s FDI (net inflows, current dollars):

Indonesian FDI

How Record Low Interest Rates Are Fueling The Bubble

The emerging markets bond bubble helped to push EM corporate and government borrowing costs to all-time lows, but there is another factor that is causing the inflation of bubbles in Southeast Asia: record low bank loan rates. Large corporations have a choice to borrow from either the bond market or directly from banks, and typically choose the option that provides the lowest borrowing costs.

Western benchmark interest rates – particularly the LIBOR or London Interbank Offered Rate – are used to price bank loans in numerous countries throughout the entire world, and most have been hovering just above zero percent in the five years since the Global Financial Crisis. Most Western economies were hit extremely hard in the financial crisis and have faced a constant threat of falling into a deflationary trap since then, which is why their benchmark interest rates have been at virtually zero. In the U.S. Federal Reserve’s case, it has been running what is known as ZIRP or zero-interest rate policy.

Here is the chart of the LIBOR interest rate:

Libor

Due to the fact that the West was the primary epicenter of the 2003 to 2007 bubble economy and ensuing Global Financial Crisis, emerging market economies were able to rebound more quickly and continue growing at a much greater rate. While many Southeast Asian economies have been growing at a 5 percent or greater annual rate since 2008, they have been able to borrow at record low Western interest rates such as those based on the LIBOR. LIBOR is used as the base rate for nearly two-thirds of all large-scale corporate borrowings in Asia. Western interest rates are too low relative to Southeast Asia’s economic growth and inflation rates, so a large-scale borrowing binge has been occurring as a side-effect. Southeast Asia’s credit bubble may balloon even larger because Western benchmark interest rates are likely to stay at very low levels for several more years.

Local benchmark interest rates in many Southeast Asian countries have hit record lows since 2008 as well. Local interest rates are used for approximately one-third of large-scale corporate loans in Asia, as well as most consumer, mortgage, and smaller business loans. Southeast Asian central banks have kept their benchmark interest rates low to stem export-harming currency appreciation that has resulted from capital inflows since the financial crisis.

The chart below is Singapore’s benchmark interest rate, or SIBOR, which is commonly used as a reference rate for loans throughout Southeast Asia:

singapore-interbank-rate

Here is Malaysia’s bank lending rate chart:
malaysia-bank-lending-rate

The Philippines’ bank lending rate:
philippines-bank-lending-rate

Indonesia’s benchmark interest rate:
Indonesia's Benchmark Interest Rate
Thailand's benchmark interest rate:
thailand-interest-rate

Southeast Asia’s Boom Is Driven By A Credit Bubble

Abnormally cheap credit conditions have led to the inflation of credit bubbles across Southeast Asia, which have been a significant driver of the region’s economic growth in recent years.

Singapore’s total outstanding private sector loans have soared by 133 percent since 2010:


singapore-loans-to-private-sector

Malaysia’s private sector loans have increased by over 80 percent since 2008:
Malaysia Loans to Private Sector

The Philippines’ M3 money supply, a broad measure of total money and credit in the economy, has more than doubled since 2008, and sharply accelerated in 2013 as interest rates hit new lows:
Philippines M3 Money Supply

Indonesia’s private sector loans have risen by nearly 50 percent in the past two years:
indonesia-loans-to-private-sector

Thailand’s private sector loans have risen by over 50 percent since the start of 2010:
Thailand Loans To Private Sector

Though dangerous credit bubbles are inflating across Southeast Asia, some countries’ credit bubbles are driven primarily by consumer or household debt, while others are driven mainly by commercial sector borrowing, particularly for construction and property development. Singapore, Malaysia, and Thailand’s credit bubbles have a significant household debt component as the chart below shows:
BWNLMLjCQAAdNZ-9


Singapore’s household debt-to-GDP ratio recently hit nearly 75 percent, which is up from 55 percent in 2010 and 45 percent in 2005. Though Singapore’s total outstanding household debt has increased by 41 percent since 2010, the city-state’s household income and wages have increased by a mere 25 percent and 15 percent respectively.

Malaysia now has Southeast Asia’s highest household debt load after its household debt-to-GDP ratio hit a record 83 percent, which is up from 70 percent in 2009, and up from just 39 percent at the start of the Asian Financial Crisis in 1997. Malaysian household debt has grown by approximately 12 percent annually each year since 2008.

Thailand’s household debt-to-GDP ratio also hit a recent record of 77 percent, which is up from 55 percent in 2008, and just 45 percent a decade ago. Total lending to Thai households increased at a 17 percent annual rate from 2010 to 2012, while household credit provided by credit card, leasing and personal loan companies rose at an alarming 27 percent annual rate.

Property Bubbles Are Ballooning Across Southeast Asia 

Ultra-low interest rates in Southeast Asia have helped to inflate property bubbles throughout the region, which has also contributed to the staggering rise in household debt.

Singapore’s mortgage rates are based upon the SIBOR rate discussed earlier, which has been held at under one percent for over five years. Singapore’s property prices have roughly doubled since 2004, and are up by 60 percent since 2009 alone:

Singapore-Housing-Bubble
Source: GlobalPropertyGuide.com 

The average price of a new 1,000-square-foot condo has risen to $1 million to $1.2 million Singapore dollars ($799,000 to $965,638 U.S.), making the city-state the world’s third most expensive residential property market behind Canada and Hong Kong. A 2013 study by The Economist magazine showed that Singapore’s residential property prices are 57 percent overvalued based on its historic price-to-rent ratio. Singapore now ranks as one of the world’s ten most expensive cities to live.

Economic bubbles and the resulting false prosperity in other Asian countries have spilled over into Singapore as investors from across the region clamor to buy properties there. In 2013, 34 percent of foreign property-buyers in Singapore were from China, 32 percent were from Indonesia, and 13 percent were from Malaysia.

Total outstanding mortgages increased by 18 percent each year over the last three years, bringing total mortgage loans to 46 percent of Singapore’s GDP from 35 percent. Almost a third of Singapore’s mortgages are utilized for speculative property purchases rather than owner occupation. Singapore’s mortgage loan bubble is one of the primary reasons why the country’s household debt has been increasing at such a high rate in recent years.

Malaysian property prices have been increasing parabolically in recent years, as the chart below shows. Mortgage loans account for nearly half of all Malaysia’s household debt, and its rapid increase is the primary driver of the country’s household debt bubble.

Malaysia Property Bubble Chart


Prices have nearly doubled in the past decade in certain Philippine property markets, such as the Makati Central Business District (CBD):

Philippines Property Bubble

In the first six months of 2013, the average price of a 3-bedroom luxury condominium in Makati CBD rose by a frothy 12.92 percent (9.98 percent inflation-adjusted), after rising 5.6 percent in Q1 2013, 8 percent in Q4 and 8.3 percent in Q3 2012. The average price of a premium 3-bedroom condominium in Bonifacio Global City surged by 12.4 percent y-o-y, while secondary residential property prices in Rockwell Center rose by 10.6 percent y-o-y. Philippine outstanding mortgage loans are rising at an even faster rate than consumer credit, such as a 42 percent increase in 2012. The Philippines’ construction sector is expected to expand by double digits in 2014 and account for nearly half of economic growth thanks in large part to the country’s property development boom.

Though Indonesian property market data is spotty and difficult to source for all markets, Jakarta and Bali property prices are becoming frothy, especially at the higher end of the market. Jakarta condominium prices rose between 11 and 17 percent on average between the first half of 2012 and 2013, after rising by more than 50 percent since late 2008. Luxury real estate prices in Jakarta soared by 38 percent in 2012, while luxury properties in Bali rose by 20 percent – the strongest price increases of all global luxury housing markets.  A small two-room apartment on the outskirts of Jakarta can cost nearly $80,000 USD (RM253,373), making housing unaffordable for many ordinary Indonesians. From June 2012 to May 2013, outstanding loans for apartment purchases nearly doubled from IDR 6.56 trillion (USD $659.3 million) to IDR 11.42 trillion (USD $1.15 billion).

Thailand’s property bubble is centered primarily in the condo market, which is the most common type of dwelling for Bangkok residents, and is the speculative vehicle of choice for foreign investors who typically hail from Singapore and Hong Kong. According to Bank of Thailand, condo prices soared by 9.39 percent, while townhouses prices rose by 6.86 percent in Q1 2013, after rising by similar amounts for the past several years. The majority of new mortgages originated are concentrated at the lower end of the Thai housing market, and Bank of Thailand warned that low interest rate home loans could cause a property bubble.

Boonchai Bencharongkul, a wealthy Thai industrialist, said “I think the current situation is worrisome. As one of those who had such an experience, I can smell it now. People are rushing and competing to buy condos while more and more people are driving Ferraris. These are the same things we saw before the 1997 crisis occurred.”

Construction Bubbles Abound Across Southeast Asia

Low interest rates and soaring property prices create the perfect conditions for construction bubbles, which is what occurred in Ireland, Spain, the United States, and other countries from 2003 to 2007, and what has been occurring throughout Southeast Asia in recent years. Construction is a capital-intensive economic activity that benefits from cheap and easy credit, which is certainly the case in Southeast Asia. Southeast Asia’s construction boom has been focused on condominium and residential property development, hotels, resorts, casinos, malls, airports, infrastructure projects, and skyscrapers.

Construction has been the most significant contributor to Singapore’s economic growth since 2008, as the chart below shows:

Singapore Construction Bubble

Construction industry work permits rose to 306,500 in June 2013 from 180,000 at the end-2007, which was the peak of Singapore’s economic boom before the financial crisis hit. Singapore’s construction boom has been driving an over 18 percent annual increase in total outstanding building and construction loans in recent years. Bank loans for building and construction, and mortgages recently rose to 79 percent of Singapore’s GDP, which is up from 62 percent in 2010.

Casino and resort construction has become a strong driver of building activity ever since gambling became legal in Singapore in 2010. The Marina Bay Sands and Resorts World Sentosa opened in 2010 at a cost of over $10 billion. Singapore has also been aggressively upgrading and expanding its Changi International Airport, which has been a driver of construction activity. There is so much construction activity in Singapore that the country has 306,500 construction workers (compared to its 5.3 million population) from other Asian countries living there on work permits.

After growing by over 20 percent in 2012, Malaysia’s construction spending was expected to rise by 13 percent in 2013. Malaysia’s plan to build the tallest building in Southeast Asia, the 118-story Warisan Merdeka Tower, are a major red flag according to the Skyscraper Index, which posits that ambitious skyscraper projects are a common hallmark of economic bubbles.

In the Philippines, casinos, condominiums, and shopping malls have been driving construction activity. The Philippines now hosts 9 of the world’s 38 largest malls – beating even the U.S., China, and most other developed countries. The Philippines’ construction sector is expected to expand by double digits in 2014, and account for nearly half of the country’s economic growth.

Indonesia has been experiencing a construction boom in every sector, including hotels, condominiums, infrastructure, airports, and government buildings. At least 61 new hotels are confirmed to open in Jakarta by 2015. Indonesian construction contracts were estimated at more than $40 billion in 2013, up from $32.4 billion in 2012.

Thailand’s construction boom has been centered upon condominium development and infrastructure projects, which are funded by the government’s deficit spending. Construction spending is expected to grow by nearly 7 percent annually for the next five years.

Governments Are Borrowing To Create Economic Growth

The governments of Thailand and Malaysia have been taking advantage of low borrowing costs – courtesy of the emerging markets bond bubble – to finance deficit spending for the purpose of boosting economic growth.

Since 2010, Malaysia’s public debt-to-GDP ratio has been at all time highs of over 50 percent due to large fiscal deficits that were incurred when an aggressive stimulus package was launched to boost the country’s economy during the Global Financial Crisis. Malaysia now has the second highest public debt-to-GDP ratio among 13 emerging Asian countries according to a Bloomberg study. Malaysia’s high public debt burden led to a sovereign credit rating outlook downgrade by Fitch in July.

Malaysia Government Debt to GDP Malaysia’s Malaysia's government has been running a budget deficit since 1999:
Malaysia Government Budget Deficit

Thailand’s government spending ramped up significantly in 2012 after the launch of a $2.5 billion first car tax rebate program that was fraught with problems as well as an unsuccessful rice subsidy scheme that lost the government 136 billion baht or $4.4 billion even though it was promoted as cost-neutral. Thailand’s government also plans to spend 2 trillion baht ($64 billion) – nearly one-fifth of the country’s GDP – by 2020 on growth-driving infrastructure projects, including a network of high-speed railway lines to connect the country’s four main regions with Bangkok. The interest alone on this new debt will cost another 3 trillion baht over the next five decades.

Thailand’s government spending is up by nearly 40 percent since 2008:
Thailand Government Spending
The country’s government has been running a budget deficit since 2008 to support its spending:

Thailand Government Budget Deficit

A wealthy Thai industrialist, Boonchai Bencharongkul, warned against excessive government spending, saying “This time, the nature of the crisis might be different. Last time it was the private sector that went bankrupt, but this time we might see the government collapse.” Sawasdi Horrungruang, founder of NTS Steel Group, cautioned that Thailand’s government should not borrow beyond its ability to service its debt, which will eventually become the burden of taxpayers.

How Singapore’s Financial Sector Is Driving The Bubble

Singapore has grown to become Southeast Asia’s banking and financial center, and the region’s rise – and inflating economic bubble – in recent years has helped the city-state to earn the nickname “The Switzerland of Asia.” Singapore’s financial sector is now six times larger than its economy, with local and foreign banks holding assets worth S$2.1 trillion (US$1.7 trillion). The Singaporean financial sector’s assets under management (AUM) have increased at a 9 percent annual rate from 2007 to 2012, but surged 22 percent in 2012. The primary reason for the country’s rapid AUM growth is its growing role as a banking hub in Southeast Asia, and it has been riding the coattails of the region’s economic bubble. A full 70 percent of assets managed in Singapore were invested in Asia in 2013, which is up from 60 percent in 2012. Singapore’s financial services industry grew 163% between 2008 and 2012.

Singapore’s banks have been contributing to the inflation of Southeast Asia’s economic bubble due to their use of the abnormally-low SIBOR as a reference rate for loans made throughout the region.

Here is the chart of the SIBOR interest rate as a reminder of how low it has been for the past half-decade:

singapore-interbank-rate

To learn more about Singapore’s financial sector and its role in inflating Southeast Asia’s economic bubble, please read this section of my detailed report about Singapore’s bubble economy.

How China Is Driving Southeast Asia’s Bubble

Economic bubbles are not confined to Southeast Asia, unfortunately; since 2008, China’s economy has devolved into a massive economic bubble that has been contributing to Southeast Asia’s bubble.
Here are a few statistics that show how large China’s bubble has become:
  • China’s total domestic credit more than doubled to $23 trillion from $9 trillion in 2008, which is equivalent to adding the entire U.S. commercial banking sector.
  • Borrowing has risen as a share of China’s national income to more than 200 percent, from 135 percent in 2008.
  • China’s credit growth rate is now faster than Japan’s before its 1990 bust and America’s before 2008, with half of that growth in the shadow-banking sector.
As mentioned at the beginning of this report, China’s government has encouraged the construction of countless cities and infrastructure projects to generate economic growth. Many of China’s cities, malls, and other buildings are still completely empty and unused even years after their completion, as these eerie, must-see satellite images show.

China has a classic property bubble that has resulted in soaring property prices in the past several years. A recent report showed that property prices increased 20 percent in Guangzhou and Shenzhen from a year earlier, and jumped 18 percent in Shanghai and 16 percent in Beijing.

China’s inflating economic bubble has generated an incredible amount wealth (albeit much of it temporary), a portion of which has flowed into Southeast Asia. Wealthy Chinese have been buying condominiums in desirable locations across Southeast Asia, and its notoriously free-spending gamblers are the primary reason for the casino building boom in numerous Southeast Asian countries, particularly in Singapore and the Philippines. Chinese companies have been investing and lending heavily in Southeast Asia, with a strong focus on the natural resources sector.

From 2002 to 2012, China’s bilateral trade with Southeast Asia increased 23.6 percent annually, and China is now Southeast Asia’s largest trade partner, while Southeast Asia is China’s third-largest trade partner.

Though several lengthy books can be written about China’s rise, economic bubble, and how it affects Southeast Asia, my goal is to succinctly show how dangerous China’s economic bubble has become and emphasize the fact that Southeast Asia’s economy has been benefiting from China’s false prosperity. The eventual popping of China’s bubble will send a devastating shockwave throughout Southeast Asia’s economy, which will contribute to the ending of the region’s bubble economy.

The Role Of Southeast Asia’s Frontier Economies

This report has focused primarily on the larger, more developed Southeast Asian countries because they have a far greater influence on the region’s economy compared to the “frontier” economies of Vietnam, Cambodia, Laos, and Burma (Myanmar). The five largest Southeast Asian economies also have more advanced financial markets that are better integrated with global financial markets, and thus pose a greater systemic financial risk than the region’s frontier economies.

Southeast Asia’s frontier economies have been growing rapidly in recent years for many of the same reasons as their more developed neighbors, including:
  • Rising trade with China
  • Rising Chinese investment
  • Increasing intraregional trade
  • Loose global monetary conditions and “hot money”
  • Higher commodities prices
  • Credit and property bubbles
Vietnam experienced a property and credit bubble that popped several years ago and saddled the country’s banking system with bad loans. International realty firm CB Richard Ellis warned last year that Phnom Penh, Cambodia was experiencing a property bubble. Some local observers have suspected that property prices in Vientiane, Laos were in a bubble. Property prices in Yangon, Burma have exploded higher in recent years making commercial rents more expensive than in Manhattan.

While relevant data is few and far between, it is not unreasonable to believe that Southeast Asia’s frontier economies are experiencing froth or bubbles of their own for the same reasons as larger economies in the region. Vietnam, Cambodia, Laos, and Burma are dangerously exposed to the eventual popping of China’s economic bubble as well as the popping of Southeast Asia’s overall bubble.

Cracks Are Beginning To Show

Southeast Asia’s financial markets were strong performers in late-2012 and early-2013 until news of the U.S. Federal Reserve’s QE taper plans surfaced in the Spring of 2013, causing many of these markets to fall sharply due to fears of reduced stimulus. This rout did not come as a surprise to me as I had been warning that hot money flows were inflating asset bubbles in emerging market countries, and I even published a report titled “All The Money We’re Pouring Into Emerging Markets Has Created A Massive Bubble” just a few months before these markets plunged. The sensitivity of emerging market asset prices and currencies to the U.S. Federal Reserve’s stimulus programs was an additional confirmation that the emerging markets bubble owed its existence largely to hot money flows. The ultimate ending of the Fed’s current “ QE3″ program – which many economists expect this year – is likely to put further pressure on emerging markets and contribute to the popping of their bubbles.

While most of Southeast Asia’s financial markets and currencies have been treading water since last Spring’s taper panic, Indonesia’s situation has continued to deteriorate, causing the rupiah currency to significantly weaken due to capital outflows. The rupiah is down by nearly 50 percent from its 2011 peak. Indonesia was hit harder by the taper panic than other Southeast Asian countries because of its worsening trade and current account deficits.

Thailand has been embroiled in political turmoil in recent months as opposition protestors have been demanding the resignation of Prime Minister Yingluck Shinawatra. Opposition members claim that Yingluck is carrying on the same corrupt practices as her billionaire brother, former Prime Minister Thaksin Shinawatra, who was ousted in a military coup in 2006. The protests have harmed Thailand’s tourism industry, which is expected to slow 2014 economic growth to half of what it would have been without the demonstrations. Thailand’s stock market has fallen sharply in recent months as a result of the political strife.

How Southeast Asia’s Bubble Will Pop

Southeast Asia’s economic bubble will most likely pop when the bubbles in China and emerging markets pop and as global and local interest rates eventually rise, which are what inflated the region’s credit and asset bubbles in the first place. Southeast Asia’s bubble economy may continue to inflate for several more years if the U.S. Fed Funds Rate, LIBOR, and SIBOR continue to be held at such low levels.

I expect the ultimate popping of the emerging markets bubble to cause another crisis that is similar (though not identical in every technical sense) to the 1997 Asian Financial Crisis, and there is a strong chance that it will be even worse this time due to the fact that more countries are involved (Latin America, China, and Africa), and because the global economy is in a much weaker state now than it was during the booming late-1990s.

I recommend taking the time to read my detailed reports on Singapore, Malaysia, Thailand, the Philippines, and Indonesia to get a better understanding of Southeast Asia’s economic bubble.

In the coming months, I will be publishing more reports about bubbles that are developing around the entire world – most of which you probably never knew existed. Please follow me on Twitter, Google+ and like my Facebook page to keep up with the latest economic bubble news and my related commentary.

Jesse Colombo By Jesse Colombo, Forbes Contributor
I'm an economic analyst who is warning of dangerous post-2009 bubbles

 Related posts:
1. Asian central banks fix the mess created by their governments 

Tuesday, October 8, 2013

APEC should lead a more open world economy & play a bigger role; Reform and innovation are new drivers: President Xi said

Leaders of the Asia-Pacific region and their respective spouses, wearing traditional Balinese "endek" costumes, pose for a group photo before a dinner hosted for the leaders at the Asia-Pacific Economic Cooperation (APEC) meeting in Nusa Dua on the Indonesian resort island of Bali on Monday. Photo: AFP 






Chinese President Xi Jinping Monday called on the Asia-Pacific Economic Cooperation (APEC) economies to play a leading role in maintaining and advancing an open world economy.

Xi made the remarks during a keynote speech to an informal meeting of economic leaders at an APEC meeting on the Indonesian resort island of Bali, which had sustainable growth and regional cooperation high on the agenda.

Noting that the world economy is still confronted with daunting challenges before achieving a full recovery and sound growth, Xi said APEC must face them head-on with courage and resolve.

The president said APEC member economies should work together for the common development of the Asia-Pacific through increased macro-economic policy coordination.

With the economies of APEC members closely intertwined with economic globalization, they must amplify the positive effects of macro-economic policy coordination while preventing or reducing the negative spillover, and pursue win-win cooperation in an open and inclusive spirit, he said.

Su Hao, director of the Asia-Pacific Research Center at China Foreign Affairs University, told the Global Times that Xi's speech stressed that economic development is the priority for members of APEC, as other players try to provoke other problems in the region which might make some ignore the importance of economic development.

Meanwhile, Xi also noted that while the international community is working to push forward the Doha Round, various free trade arrangements in the Asia-Pacific are advancing in parallel, each with different rules, standards and preferred pathways.

Xi said that China believes that "any arrangement should lead to a cooperative relationship, not a confrontational one; an open mindset, not an exclusive one; win-win results, not a zero-sum outcome; and integration, not fragmentation," without naming a particular arrangement.

Analysts believe it refers to the US-advocated Trans Pacific Partnership (TPP), which excludes China.

"TPP is like a small circle which might be against APEC's aim to achieve wide economic integration in the region," said Su.

Xi also called on APEC members to stay committed to open development and resolutely oppose protectionism.

Ei Sun Oh, a senior fellow with the S. Rajaratnam School of International Studies at Nanyang Technological University, told the Global Times that Xi's call for more open access is "both timely and crucial," and Southeast Asian countries understand collective lowering of these barriers will ultimately bring forth more common interests for all.

He noted that China could take the lead, for example in lowering or canceling several tariffs in the new China (Shanghai) Pilot Free Trade Zone.

Earlier on Monday, Xi elaborated his views on the Chinese economy and the country's reform at a business forum on the sidelines of the APEC meeting, assuring business leaders that there is no reason to fear a hard landing.

China's GDP growth slowed to 7.6 percent in the first half of this year.

"I'm fully confident in the future of China's economy," Xi said, noting the slowdown is "an intended result of our own regulatory initiatives" and a "seven percent annual growth rate will suffice" to meet China's medium-term goal of doubling per capita income by 2020.

Xi highlighted the importance of reform, which he said is facing an uphill battle and in the deep-water zone.

"China is a big country. It shouldn't make subversive errors on fundamental issues, or it would be irredeemable. We not only need to be bold in exploring [reform], but also need to be cautious and think it over twice," Xi said.

The APEC group has 21 members, which account for about 55 percent of world GDP and some 40 percent of the world's population.

Agencies contributed to this story


President Xi fully confident about future of Chinese economy

Chinese President Xi Jinping (2nd L) and his wife Peng Liyuan (1st L) pose for a photo with Indonesian President Susilo Bambang Yudhoyono (2nd R) and his wife before a dinner hosted for the leaders and their spouses at the 21st APEC Economic Leaders' Meeting in Bali, Indonesia, Oct. 7, 2013. Photo: Xinhua

 Chinese President Xi Jinping said in Bali on Monday that he is fully confident about the future of the Chinese economy, based on a comprehensive analysis of all factors.

"I am confident because first of all China's growth rate is within the reasonable and expected range," said Xi while addressing the Asia-Pacific Economic Cooperation(APEC) CEO summit, noting that the change in speed of growth has on the whole been smooth.

Describing the fundamentals of the Chinese economy as good, Xi said that "everything has been going as expected and nothing has come as surprise."

He stressed that the slowdown in the speed is an intended result of China's own regulatory initiatives.

"Second, I am confidant because the quality and efficiency of China's economy development are improving steadily," the president continued.

Moving from over-reliance on investment and export to dependence on domestic demand, China, instead of taking GDP growth as the sole criterion for success, is now focusing more on improving the quality and efficiency of growth, he elaborated.

"Third, I am confident because China has a strong home-grown driving force for growth," said Xi, adding that ongoing urbanization, education improvement and expansion of domestic demand will continuously inject impetus into the economy.

The Chinese leader also attributed his confidence to the sound development prospects of the Asia-Pacific, saying his country has faith in the development of the whole region.

"China has achieved its own development, and at the same time, China's development has also contributed to regional economic growth," said Xi, eying a stronger momentum of the interaction in the future.

After wrapping up his state visits to Indonesia and Malaysia, the Chinese President arrived in Bali on Saturday afternoon to attend the APEC meeting, his first appearance at the summit since taking over the presidency in March. -Xinhua

Xi: Reform and innovation are new drivers of economic growth

Chinese President Xi Jinping has told a group of CEOs gathered in Bali that his country's economy will continue to grow. His remarks came on the final day of a summit for business leaders that was held on the sidelines of the APEC Leaders Meeting.
Chinese President Xi Jinping speaks at the APEC CEO Summit in Bali,
Indonesia, Oct. 7, 2013. (Xinhua/Wang Ye)

As the head of Asia’s most robust economy, when Xi Jinping talks, business leaders listen. And as a CEO Summit of regional executives closed, President Xi laid out his vision for Asia-Pacific’s economies.

"The Asia-Pacific has long been an important engine of world economic growth. To push forward a recovery at a time of a sluggish global economy, economies in the Asia-Pacific should have the courage to do what has never been done before." Chinese president Xi said.

Many CEOs attending the summit had expressed concern over Beijing’s QUOTE “slowing growth.” But a new study showed that nearly 70 percent of them plan to increase their investments in China in the coming years.

Speaking before Xi, the Russian president, Vladimir Putin, attempted to assure them: the entire region presented all sorts of opportunities.

Already twice this year, Russia has had to cut its growth forecast, as Moscow has struggled with waning investment and output.

Last week, the U-S overtook Russia as the world’s largest gas-and-oil producer. A point highlighted by John Kerry, the U-S Secretary of State, standing in place for Barack Obama.

Meanwhile, Kerry tried to reassure business leaders that despite Obama’s absence, Washington remained committed to region.

“I want to emphasize that there is nothing that’ll shake the commitment of the United States to the rebalance to Asia that President Obama is leading. And I think it’s fair to say to all of you that we are very very proud to be a Pacific nation.” Kerry said.

Reporter: “The CEOs represent the nearly 3 billion customers who live in the Asia Pacific region. In the coming years, the region’s economy will be determined by how those customers will spend their money and how they spend will likely be determined by what the leaders here say, and what the CEOs hear.” - CCTV

Saturday, July 27, 2013

If China sneezes…

The world catches the flu, with Asian economies expected to be the hardest hit


GROWING fears of a slowdown in China may have, for the time being, been allayed by the country’s recently announced new slew of measures to stimulate its economy. But concerns of deep-seated structural problems coming back to haunt the world’s second-largest economy at a later stage remain.

A recent report by China’s Development Research Centre points that the country’s economy has become “unstable and uncertain like never before”.

State researcher Yu Bin was quoted by the foreign media as saying that the “downward pressure” faced by the Chinese economy had been larger than expected.

“Market expectations are unstable, downward pressure has increased, and existing and new structural mismatches exist,” Yu notes.

“Growth inertia should not be underestimated as new growth engines and patterns have not been formed,” he adds.

Major indicators have confirmed that China is bound for slower growth.

For instance, a preliminary survey of purchasing managers released over the week by HSBC Holdings Plc and Markit Economics show that China’s manufacturing sector in July has contracted further, with readings for the purchasing managers index (PMI) remaining below 50, the demarcation line between expansion and contraction.

Preliminary reading shows that China’s PMI for July has fallen to an 11-month low at 47.7. This is below the consensus forecast of 48.5, and has been taken as an indication that the worst of China’s slowdown has yet to be reached.

A slowing Chinese economy has a wide implication on the world’s gross domestic product (GDP).

The sheer size of China’s economy – with its GDP expected to reach US$9 trillion (RM28.8 trillion) by year-end – speaks of its significance. It is the second-largest and currently accounts for about 10% of global economy.

The past few years have also seen China’s trade and connectivity with the rest of the world, especially Asia, growing substantially. Hence, the state of China’s economy could affect the rest through various transmission channels, such as exports, commodity prices and financial markets.

In a simulation exercise to assess the effects of China’s economic slowdown on global growth, Japanese investment bank Nomura Research found that a one percentage point drop in China’s GDP would lower global growth outside the country by 0.3 percentage point, but with a wide variation among economies.

The hardest hit economies, Nomura argues in its report, would be in Asia, with growth falling by one percentage point or more in Hong Kong, Singapore and Taiwan.

The impact, it adds, is also large on commodity-producing countries, such as Australia, Malaysia and those in Latin America. Despite being located much further away from China, the impact on GDP in Latin America is as large as that of Asia, it says.

In general, emerging-market economies will be among those hardest hit, Rob Subbaraman, Nomura’s chief economist and head of global markets research for Asia ex-Japan, says in a media conference call.

He points out that the slowing down of emerging-market economies as a result of China’s slowdown will pose a second-round effect global growth.

“If you think arithmetically what is driving global growth now, it is not Europe… the US to an extent (and) Japan to an extent, but by far, the biggest driver of global growth is emerging-market economies. This would have an effect on global growth,” Subbaraman says.

Malaysia is one of the countries highly vulnerable to a China slowdown.

For one thing, China is Malaysia’s major export destination, accounting for about 13% of the latter’s total exports last year. Malaysia’s trade balances will also be affected negatively from falling global commodity prices and lower external demand given the knock-on impact globally of slower Chinese growth.

Slower growth

China’s economy, or GDP, grew 7.5% during the second quarter of this year, after growing 7.7% in the first quarter. It was the slowest growth in three quarters.

The country’s target is for its economy to grow 7.5% in 2013. That would be the lowest growth rate since 1990.

China’s government has recently stated it would not tolerate any GDP growth of below 7% as that is viewed as the minimum rate for it to achieve “a moderately prosperous society by 2020”.
In a move seen widely to protect its growth target for 2013, China unveiled a “mini stimulus” over the week to boost its sluggish economy.

The measures include a plan to eliminate taxes on small businesses, cut costs for exporters and speed up construction of railway plans. It remains to be seen whether there will be more measures in the pipeline to boost the country’s slowing growth.

Several investment banks have already downgraded their outlook for China, with many expecting the country to miss its growth target of 7.5% this year.

Among these are Citigroup, which has cut its estimate to 7.4% from 7.6% for 2013, and to 7.1% from 7.3% in 2014; as well as HSBC, which has cut its 2013 forecast to 7.4% from 8.2%; and to 7.4% from 8.4% for 2014.

According to French investment bank Societe Generale, a hard landing in China, while an extreme view, is no longer a “non-negligible” risk.

It argues that there are two major events that could trigger a hard landing in China, which it classifies as GDP growth falling below 6%, the minimum level required to keep the country’s job market stable and avoid systemic financial risk.

These events include trade shocks, which could lead to a sharp deterioration in exports and loss of jobs; and insufficient public investment or an intended deleveraging going out of control.

Nomura, which has recently cut its forecast for China’s 2014 GDP to 6.9% from 7.5%, believes there is now a 10%-20% chance for China’s economic growth to fall below 6% next year, as the country faces stress from many dimensions, including financial leverage, pollution and social tensions.

Nomura argues that there are both cyclical and structural factors contributing to China’s slowdown.

According to Nomura, China’s potential growth structurally is on a downtrend due to a dwindling labour force and a lack of reform, while cyclically, the monetary policy stance has changed from its loose bias in the second half of 2012 to a tightening bias since the second quarter of this year.

“Given the high level of leverage in the economy, policy tightening may lead to a faster deleveraging process, higher interest rates and a credit crunch, all of which would combine to cause a sharp slowdown in economic growth,” it says.

By CECILIA KOK The Star/Asia News Network


When China Sneezes, Everyone Gets Sick

Not too long ago, the story was that when Chinese buy an ounce more of rice and eat more chicken, commodities prices would rise. And indeed they did. But now the story is, if China sneezes, we all get the flu.
The Chinese economy is sick. Not deadly sick, but in a funk.

It’s not that the funk will put the U.S. or Brazil in negative growth, but it will in Europe. Indeed, if China does see growth in the hard landing territory of under 6%, every economy in the world will see their GDP fall. Asia will be hardest hit. The Eurozone, already flat, will go downhill.

“The likelihood of China experiencing this risk scenario is a non-trivial 10-20%,” said Rob Subbaraman, Nomura’s Chief Economist and Head of Global Markets Research, Asia ex-Japan.

In Nomura’s baseline scenario, China’s GDP growth slows to 6.7% in the first half of 2014 and recovers slightly in the second half, bringing next year’s GDP forecast to 6.9%, China’s slowest since 2008. Both cyclical and structural factors contribute to this slowdown. Structurally, China’s potential growth is on a downtrend due to a dwindling and aging labor force and a lack of reform. The government still runs the national and local economies, making China slow and not very dynamic.

The current deleveraging process in China, which follows such a profound period of credit growth, is likely to last well into 2014. There will be less money to go around in the world’s No. 2 economy. In a higher risk scenario, GDP growth slows to 5.9% for full-year 2014 and to 5% in the first half of next year. If that doesn’t make the hard landing callers seem prescient, then I don’t know what does other than a bankruptcy of a major Chinese lender.

Not that bankruptcies are out of the question.

Earlier this year, China faced its first ever default on a $531 million loan by Suntech Power Holdings, one of the largest solar power companies in the world. Suntech power shares are now trading under $2, down 95.6% in five years.

There area few key sectors of the economy that need to downsize. After building up so much in the past as states looked to create their own industries and help with full employment, companies in the automotive and solar power space will be particularly hard hit.

And while some will be absorbed by larger players, it is probable that many will just fold due to lack of demand. Workers will be unemployed. China doesn’t have the safety net we have in the United States. If this gets out of hand, there is a chance for social unrest.

“We have considered a range of stresses which the economy faces from many dimensions, including financial leverage, pollution and social tensions,” said Subbaraman.

The Side Effects

“We find that stocks in the mining and energy-intensive U.K., Latin America and emerging Europe, Middle East and Africa exhibit the MSCI World’s highest — and in this scenario, adverse — correlations with China H-shares,” said Michael Kurtz, Nomura’s Global Head of Equity Strategy and Chief Asia ex-Japan Strategist. H-shares are priced in Hong Kong dollars.

Kurtz said that from a top down approach, Japan offers the world’s lowest equity correlation with China H-shares, along with key fundamental firebreaks that make Japan an attractive “defensive” equity market in a China slowdown scenario.

For global currencies, a sharp slowdown in China’s economy would have both direct and indirect negative impacts on commodity producers and countries with relatively large China trade links, mainly Australia, Canada, Brazil and Korea.

The hard landing scenario of less than 6% growth is not Nomura’s baseline case because they think the government can take action to smooth out the deleveraging process and growth slowdown to avoid a financial sector meltdown.  The banking sector is totally under the government’s control.

In a 58 page report to clients released by Nomura this week, analysts said they did not think Beijing will allow banks to fail. So the transmission of corporate default may not be amplified through bank failure. This is the key difference between financial risks in China and those we have seen unwind in market economies.

The indirect impact of a sharp investment-led China downturn, via a slump in commodity prices, stands to be substantial for some countries like Brazil.  China is Brazil’s biggest trading partner.  Brazil’s primary exports there are soy and iron ore, so any slowdown will be particularly bad for miners like Vale VALE -0.42%.

Vale shares this year are down 31.7%, worse than the Bovespa Index’s other major large cap, Petrobras PBR -0.41%, which is down by 26.03%.

China’s per capita imports for metals now rivals that of advanced economies, according to the International Monetary Fund. It accounts for some 30% of the world’s total imports of metals and a full 65% of total iron ore imports globally. In energy, China’s share of world imports is in the high single digits, while for food it is low single digits, with the substantial exception of soybeans, which is over 50%.

The IMF has estimated that a one percentage point fall in China’s GDP growth can result in price declines of 6% for oil and base metals.

Here’s what a decline will do for countries around the world. For areas already struggling, it means recession.

Achoooo!!!

Real GDP growth in 2014 under Nomura’s base case and China risk scenario.
China                              Base Case 6.9%             China Risk 5.9%        Difference (pp) -1%
Global Ex-China                  2.5%                               2.2%                            -0.3%
Asia                                          4.1%                               3.6%                            -0.5%
United States                        2.6%                               2.4%                            -0.2%
Eurozone                               0.0%                             -0.3%                            -0.3%
Japan                                       2.5%                              2.0%                             -0.5%
Brazil                                        1.8%                              1.3%                              -0.5%
India                                        5.5%                              5.2%                              -0.3%
Aggregates are calculated using purchasing power parity (PPP) adjusted shares of world GDP.
Source: Nomura Global Economics.