By Chris Shaw<\/p>\n
According to DBS, a reasonable expectation for Asian economic growth is
\nsomething in the order of 7% annually, assuming conditions are not too
\nbad. It is this assumption that makes recent performance interesting as
\nthe group notes growth in the region has been solid (driven largely by China and India) yet conditions have been far from ideal given weakness in the US economy and a tripling in oil prices over the past three years.<\/p>\n
The reason growth has remained strong in the group’s view is the
\nstrength of Asian demand as this has been enough to support growth,
\nwhile at the same time the region has survived the increase in
\nthe oil price as it has been regional demand that has driven
\nthe oil price higher.<\/p>\n
It is the latter that is somewhat surprising as the group points out
\nAsia is home to six of the world’s 14 largest oil importers, with
\nChina, India, Korea and Taiwan in the top 10, meaning the higher oil
\nprice should be creating something of a disaster scenario.<\/p>\n
Yet the opposite is happening and growth remains strong, with a perfect
\nexample being Singapore’s 6.7% year-on-year growth in the first
\nquarter, which is faster than the growth it achieved three years ago
\nwhen US growth was running at around 4% year-on-year and oil was
\none-third its present level.<\/p>\n
And it doesn’t stop there, DBS pointing out Hong Kong has done even
\nbetter and China and India have powered along, results that are turning
\ntraditional thinking on their head as the region’s current role is far different than what used to be the case.<\/p>\n
More and more it is Asia that is proving the world’s incremental demand
\ngrowth and this is what is driving global economic growth. It is the
\nsame story in oil, where the group notes Asia is the biggest driver of
\noil demand and it is this and not supply contraints that are pushing up
\nthe oil price.<\/p>\n
This means when attempting to measure the cost to economic growth of
\nhigher oil prices a traditional line of analysis will prove to be
\nwrong, as traditionally an oil crisis is thought to be the result of
\nsupply side issues and not one driven by strengthening demand. <\/p>\n
It also explains why the Asian region has been able to ride out the storm of the oil price surge, as higher prices from strong demand are paid for when they are incurred, but a supply side shock is something that impacts after the fact and has a more measurable cost.<\/p>\n
The other point is Asia is no longer “too small to matter” as the
\nregion has grown by 50% over the past five years, meaning Asia now
\ngenerates almost as much new demand for the global economy as the US
\ndoes, compared to the US generating double the amount back in 1990.<\/p>\n
Equally important in the group’s view is the fact while the oil deficit
\nas a proportion of GDP has widened in the Asian region as oil prices
\nhave risen, current account deficits haven’t, which means the dynamic
\ngains to the economies in the region of higher and stronger growth are
\nnot being impacted by the higher oil price, which is allowing Asia to
\ncontinue to record such strong growth.<\/p>\n
The other positive is countries in the region are becoming much more
\nefficient in their oil usage, meaning their price of oil is being
\nlowered in real terms, allowing them to get the most out of
\nthe growth in global demand of recent years.<\/p>\n
So does this mean the future for global growth is bright despite higher
\noil prices? Well, not exactly is DBS’s answer, as inflation is becoming
\nan increasing issue for the G3 in particular, but addressing the issue
\nmeans determining what level of inflation is acceptable.<\/p>\n
In Asia the group notes an inflation rate of between 4-8% is considered
\nok, but for the US and Europe to achieve their inflation targets of closer to 2% it will require a sacrificing of growth as interest rates will have to be lifted to bring inflation under control.<\/p>\n
This does complicate the global outlook in the group’s view as attempts
\nto fight inflation in the US and Europe will lower domestic growth rates in both economies, making any fight against rising inflation may be an ugly one until both realise they can’t win such a battle and more or less accept higher inflation as a consequence of the global growth being driven by Asian demand.<\/p>\n
To play such an environment the group suggests market exposure should
\nbe centred on the developed markets of Singapore, Taiwan, Hong Kong and
\nKorea as here the downside risks to economic growth are lower given
\nemerging markets run an increased risk of policy mistakes.<\/p>\n
In terms of aset allocation DBS is currently overweight Singapore,
\nTaiwan and China, while taking benchmark weight positions in Hong Kong
\nand Korea and being underweight Malaysia, Thailand, Indonesia and India.<\/p>\n","protected":false},"excerpt":{"rendered":"
Stronger oil prices should be hurting Asia given its high level of imports but according to DBS it is demand growth through the region that is allowing growth to remain strong.<\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[58],"tags":[24],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/54339"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=54339"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/54339\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=54339"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=54339"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=54339"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}