Nomura Sees Power Shift from West to East
Asia is witnessing a resurgence in its financial and political fortunes and will be at the forefront of an accelerated shift of global influence from west to east. This is the central finding in a major study ‘The Ascent of Asia’, launched today and produced in partnership by Nomura and Dr. John Llewellyn, the distinguished global economist.
The study shows that Asia’s solid macroeconomic fundamentals and positive policy responses following the global financial crisis enabled the region to recover quickly, and will contribute greatly to its growth over the medium-term.
“Asia’s medium-term economic prospects are bright and the region has enormous potential on the supply side,” said Dr. Llewellyn. “Fully realising its potential will depend on it achieving a sustainable pace of demand and even more importantly a sustainable structure”.
China and India are identified as two countries which are well positioned to take advantage of the favourable growth conditions. However, this growth will depend fundamentally on policymakers developing their views on macroeconomic, structural and trade policy.
The report asserts that China has strong and better-balanced growth ahead but its policy challenges are numerous and urgent given the country’s rapid pace of development. Internationalising the renminbi and developing an effective social security system are fundamental to China’s continued growth story. Domestic demand is also positioned to make a greater contribution to economic growth which is extremely important given the recent slowdown in global demand for China’s export goods.
Growth potential in India remains considerable and the country has everything to play for in the medium term. Nomura estimates that GDP growth could be boosted to 10 percent per annum in the coming decade if policymakers persist with infrastructure investment projects and tough domestic structural reforms. Given that India has a rapidly growing labour force supported by high savings levels, it is argued that the country has the basic ingredients needed to become an economic powerhouse.
Looking to the wider Asia region, Japan has experienced the most severe downturn of the OECD countries but is not as supply constrained as often thought. The study shows that Japan faces clear limitations to its medium term growth prospects driven by a combination of the reduction of the labour force and an expanding fiscal deficit. These present a test for Japanese policymakers and ultimately the economy’s fiscal position.
However the report identifies a huge underutilised asset which, if harnessed, could maintain the economy at its current level until 2020: its female population.
Smaller Asian economies are also set to grow powerfully as the driver of regional economic growth shifts away from a dependence on exports to the West and re-focuses on servicing regional demand. Collectively, Asia’s smaller economies represent around 6% of global GDP and Nomura’s analysis suggests that trade liberalisation and an increase in intra-Asian trade agreements are particularly important factors which will drive the pace and manner of economic development in the region. The research argues that by linking themselves through trade, smaller Asian nations can expand and transition away from being chiefly based on western demand.
Reassuringly for some, Asia’s economic growth story does not come at the expense of western economies but it does increase the risk of potentially fractious protectionist measures in key industrial sectors.
“Some in the West fear the rise of Asia, however a region which is rich offers more to its neighbours than one which is poor. The challenge for western economies will be to adapt and thereby benefit from the evolving opportunities that a rapidly growing Asia affords,” said Dr. Llewellyn.
The report concludes that Asia’s policymakers face considerable challenges to ensure that their economic growth remains sustainable. However, the potential rewards are huge and Asia has everything to play for.