Focus on Asia – Goldman Sachs’ Jim O’Neill poses some questions for the ‘Asian Economic Century
I returned from a quick trip through parts of Asia on Saturday, thinking that we have reached a critical stage in terms of economic policy and development in many parts of that region, especially in terms of whether this century will turn out to be ‘theirs’ in the way that so many of us believe.
On my trip, I spent time in Australia, Hong Kong and Singapore. And while I didn’t visit any of the big five economies – (mainland) China, India, South Korea, Indonesia, and Japan – their developments, especially China’s, is what I spent most time discussing. I shall be returning to the region and the majority of the bigger economies in November.
Of course, it was not possible to avoid discussion of Europe, the US and elsewhere with clients as I travelled, especially as there is so much in the news about them. I shall touch on those parts of the world briefly before I turn to Asia.
Before I do that, to emphasize the relative importance of regions for just this second decade of the century, let me repeat something key from our economic assumptions that I occasionally refer to.
We are assuming that the eight economies we define as ‘Growth Economies’ – Brazil, Russia, India, China, Indonesia, South Korea, Mexico and Turkey – will contribute around $15trn in real terms to the world this decade.
This contribution will allow for faster, yes faster global GDP growth of around 4.2% than for each of the past three decades. Of this $15trn, one-half will come from China, and another quarter of the total will come from the other Asian Growth Economies.
This $15trn total will be more than twice that of Europe and the US combined.
The Next 11 (N-11) economies, which as well as including South Korea and Indonesia, include another four Asian economies – Bangladesh, Pakistan, the Philippines and Vietnam – will contribute nearly as much as the G7 and more than either the US or Europe.
As from my meetings in Europe the previous week, I found that most people I met in Asia didn’t seem to think that QE3/’QE infinity’ was that important a positive for the real economy, with many thinking that it wasn’t the force that would unleash the private sector animal spirits and might only serve to raise inflation expectations.
My view is that, while other policy developments are also necessary, especially from Congress post-election, I think the Fed’s decision is a step on the road to nominal GDP targeting.
Giving such an asymmetric bias to policy until unemployment figures fall is a big development and positive for both nominal US GDP growth and US and global asset prices.