Despite protectionist rhetoric from the US and gloomy forecasts from the International Monetary Fund (IMF), this year will be better than you think, says Deloitte, one of world's most recognised economics advisory practices.
With the release of its new Voice of Asia series last week, Deloitte said, three factors suggest global growth is about to surprise on the upside.
And Asia will lead the way – with flow-on benefits for Australia.
Chris Richardson, Deloitte Access Economics explained: “First, the global economy is finally normalising after a decade of shocks, and a natural healing process is underpinning a more resilient recovery. Second, world trade is already lifting and the benefits of this are spilling into Asia. And third, Asia’s mega-economies of India and China, are increasingly being powered by consumer booms, acting as a stabilising force in their economies and for the region.”
That triple treat of positives plays Australia’s way. The healthier the global backdrop, the better the chance that 2017 will finally put to rest Australia’s income recession of the past five years.
“Yes, there are risks, with those for 2017 revolving around the potentially volatile mix of President-elect Trump, trade and tariffs – but there are always risks, and too many forecasters are too negative on Australia’s 2017 outlook,” Richardson said.
Global economy stabilising
Following a series of shocks that began with the global financial crisis and then, in quick succession, the Eurozone debt crisis and the geopolitical shocks in the Middle East, Europe and Asia, the global economy is finally normalising.
Deloitte’s report predicts that global growth could in fact accelerate in 2017, with leading indicators already pointing to a lift in world trade.
This will begin a virtuous circle in which global growth triggers an upsurge in trade which, in turn, fuels stronger growth.
Asia’s major markets of China and India are also powering ahead and growth in most other countries in the region are strengthening, aided by a buoyant US economy.
Trade picking up
World trade volumes were damaged by successive crises and shocks in recent years, but leading indicators suggest volumes are ready to lift. Of course, there will still be risks in 2017, the largest of which may be the anticipated depreciation of the Chinese Yuan, which could affect the region’s nascent recovery.
Sitao Xu, Deloitte China Economist said: “The continuing devaluation of the Chinese Yuan is necessary, though how the Chinese government manages it will be key. If it’s too aggressive, other Asian currencies may also fall, which could tempt the incoming US President to follow through on his protectionist rhetoric and hit trade.
“Asia is increasingly plugged into China-centric value chains. Any impact on China from yuan devaluation or other policy changes could have a significant knock-on effect on other Asian economies. However, in the long run, most economies in Asia will benefit if China succeeds in rebalancing its economy.”
While President-elect Trump is still largely an unknown quantity, his influence on global trade may be overstated. Indicators point to Asian and global trade strengthening, despite the rise of nationalistic and protectionist voices globally.
Asia’s mega-economies, China and India, are increasingly being powered by consumer booms, providing Asia with an additional line of defence if global growth isn't as good as expected and trade tensions boil over.
“A new and optimistic generation is taking the lead in driving the direction of their economies: one that is technologically savvy, comfortable with the borderless consumerism of the global middle class, and yet imbued with the consumption-smoothing instincts of its parents and grandparents,” Sitao Xu said.
The new generation of consumer will be a stabilising force, meaning they are likely to play an anchor role for both Asia and Australia, regardless of other developments.
The Voice of Asia series brings to life the challenges and opportunities facing the Asia Pacific region today and tomorrow.
Edition one comprises three reports:
- Four things you need to know about Asia in 2017
- Trade to trump protectionists and boost global growth
- Asia’s weapons of mass consumption
For more on the Voice of Asia, visit Deloitte University Press.