Hamish McRae: Asia shows a vigour that is sadly lacking on our side of the world
Our writer reports from Singapore, where economic growth is still at 6 per cent despite its ties to the West
Friday 30 September 2011
The world economy really does look different from the other side and, frankly, it is a bit of a relief to get away, albeit briefly, from the relentless agonising over the Greek default and the future of the eurozone. There is, however, such attention paid now to China and India that we tend to gloss over what has been happening in the other emerging economies, and even more so, the so-called newly industrialised economies, or NIEs, that now match Western Europe and the US in terms of standards of living.
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I suppose the greatest imponderable facing the global economy now is whether the emerging world will continue to grow strongly even if the developed world does stagnate, or even slither back into recession. Put crudely it is: does Asia still need North America and Europe? The answer, and this visit to Singapore has brought this home to me, is that it depends on what level of development a country has reached. India's economic progress is pretty much determined internally; China does very much need its export markets but has diversified away from North America and Europe towards faster-growing Asia. But if you are one of the four Asian NIEs – Singapore, Korea, Hong Kong and Taiwan – you are still very dependent on exports to the developed world.
You can see that pattern in the first chart on the right. There was no recession in China and India. What are known as the Asean four – Indonesia, Malaysia, the Philippines and Thailand – did collectively dip just below the waterline. But NIEs took a big hit – as big a loss of output as we did in Britain.
Now, however, the recovery of these four looks far stronger than that of the US, Europe or the UK. Singapore is a case in point. It is the great global hub. It vies with Shanghai as the world's busiest port, with one-fifth of the entire world's container traffic, and is clearly the largest trans-shipment port. You look across the harbour and there is a mass of ships there, but quite a lot of them are high in the water and waiting for trade to pick up. Singapore has been particularly badly affected by the supply chain disruption following the Japanese earthquake, with the result that GDP in the second quarter fell by more than 6 per cent quarter on quarter. But this followed a surge at the beginning of the year and, for the year as a whole, growth is expected to come in at 5 to 6 per cent.
So you see Singapore has not decoupled from the rest of the developed world. If world trade goes into reverse it is more immediately and directly hit than just about anywhere else. But because it is in the right bit of the globe, it is able to ride on Asian growth. As the Monetary Authority of Singapore notes in its latest report: "The trade-related sectors, which account for almost half of Singapore's GDP, will be most vulnerable to further weakness. However, resilient Asian demand should partially offset these headwinds from the industrialised countries..."
Singapore has another advantage over just about every developed nation. It has a strong fiscal position. Despite the turmoil of the past three years, it has a balanced budget and actually expects a small surplus this fiscal year.
There is a wider point here, as the bottom graph shows. It is the extent to which public debt in the developed countries taken as a whole seems set to carry on growing as a percentage of GDP right through to 2016, whereas the debt in the emerging world is already much lower and seems set to continue shrinking. It may not turn out quite like this but these are estimates from the International Monetary Fund's latest World Economic Outlook and should be taken seriously. National debt is a phenomenon of the developed world, whereas the emerging and developing countries are relatively debt free.
Something else is happening here that I find fascinating. There is a population boom. In 1990, Singapore had three million residents; now it has more than five million; and there are suggestions that it might in another 20 years reach seven million or more. The reason is inward migration because the birth rate is at European levels.
Singapore is a magnet for talent. This has a mathematical impact on debt ratios. Whereas most of Europe has the prospect of a declining workforce and, therefore, fewer people earning money to service their huge public debt, much of the emerging world, including even relatively mature economies such as Singapore, has growing workforces, well able to service their much smaller debts. In another decade, the effects of China's one-child policy will start to change Chinese demography, but that effect has not become evident yet.
Of course, things change. It is only some 15 years since the Asian debt crisis of the mid-1990s, which devastated many of the smaller economies in the region. So it is not sensible to lump together the whole of East Asia as paragons of fiscal probity, anymore than it is sensible to despise the entire West for its fiscal ill-discipline. But you do, at least in Singapore, get a sense that governments feel it is its duty to focus on long-term fiscal sustainability in a way that European governments simply don't see as such a high priority. Indeed, in Britain at least, the previous government almost wants to conceal the chasm between its stated objective when it came to power that it would be fiscally responsible, and the catastrophic fiscal legacy it bequeathed the Coalition. The same could be said of the Bush administration, though the blame has unfairly been loaded on to President Obama. The uncomfortable question we have to ask is why it should be that many Asian governments seem more financially responsible than our own ones?
Singapore is, of course, an exceptional case. I don't want to eulogise it because it would be impossible to replicate its political and economic model even if one wanted to – and most Europeans wouldn't. Not everywhere can be a transport and communications hub. In any case, much of the economic success of the Asian "tigers" has been built by applying technologies developed in the US and Europe to the opportunities of the Asian time zone. But anyone visiting a fast-growing newly industrialised economy will be struck by the contrast with Europe. The contrast is not just about growth, for that can never be more than a means to an end. It is about vigour, about self-confidence and even about a sense of moral superiority.
The relevance to Europe is that it is now being suggested that the Bric nations should contribute to a bailout for the eurozone – last week, Christine Lagarde, the new managing director of the IMF, called on them to use their financial resources to do so by buying European bonds and making direct investments. Whether or not anything more than token support will be forthcoming is still to be seen. But think about the long-term consequences of China and India trying to rescue a European project that had gone awry. Could they really do it? What would they demand in return?
As for the argument that it is so in the self-interest of Asian countries that they are more or less obliged to chip in to a European rescue fund, think about this. Here in the most exposed of the South-east Asian economies, Singapore, while a collapse in demand from Europe would do some damage, the country is managing to sustain more than 5 per cent growth – far faster than any European country. The world does indeed look different from the other side.
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