Presentation to CEO Leadership Exchange 2012 23rd May 2012

Manu BhaskaranCentennial Group

The Global New Normal & Opportunities for Home Grown

Global Champions

Confidential

KEY TAKEAWAYSDespite risks, Asian surge will continueShort term risks: Asia has not decoupled

Expect bad newsLong term: changing landscape

Global trends: Changing growth driversAsian trends: Asian Century or …?

Singapore as a major beneficiaryAdjusting to challenges, beneficiary of

trends

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THE SHORT TERM:

WEAKER GROWTH, NO CRASH

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SHORT TERM: RISKS DOMINATECaution neededEurozone: recession is unavoidable

Still largest market; financial shocks tooChina: worrying signs of sharp weakening

Domestic/external demand fallingJapan: recovery from disasters but

Nuclear power shutdown, sales tax fearsUS: not strong enough to offset

Job/income growth weak demand weak

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THE LONG TERM TRENDS

GLOBAL ECONOMY

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KEY CHANGES IN GLOBAL ARENAThe next decadeSlower global growth but higher quality

G-3: deleveraging, not credit fuelledChina: demographics, up the value chain

A more volatile worldPolitical stresses, energy prices, policy

shiftsChanging structure of competitiveness

Re-industrialisation of USDefinancialisation: smaller finance sector

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SLOWER GROWTHG-3 economies’ adjustmentDeleveraging will take a few years

Households have to raise savings rateGovernments cut budgets

Credit system will take time to healBanks will be wary, borrowers too

Restrained investmentTo absorb excess capacity in housing

etc

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SLOWER GROWTH (2)China will slow significantlyDemographics – work force growth slows

Migration of rural workers slowingLabour costs rising – wages, social security

Shifting policy emphasisQuality not quantity: environment,

inequality..Removing hidden subsidies: energy, etc

Reaction to over-investmentEspecially in housing

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PATTERNS OF GROWTH

Substantial volatility, stressesGlobal finance: hard to reformDeveloped: restructuring stressesEMs: high growth cannot be smoothTighter competition for resourcesImportance of resilience

Balance of shock absorbers, amplifiers

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CHANGING STRUCTURES

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CURRENCY REALIGNMENTS

Role and value of US Dollar downUS Dollar - diminished

Role: no more dominant reserve currencyValue down as USD holders diversify

awayAsian currencies rise vs USD, EUR

Winners: RMB, TWD, KRW, SGD, MYRRMB will rise vs other Asians

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CHANGING COMPETITIVENESS

Don’t underestimate the USUSD down, boosting domestic producersNew energy boom in US lower costsMassive restructuring: efficiency gainsClear signs of re-industrialization

1st refineries, petrochemical in decadesChip plants – IntelProducts with high tech, high tpt costs,…

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EMERGING MIDDLE CLASSStructural shifts in global demandAsian middle class grows sharply over next

40 years

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CHANGING STRUCTURES (2)

Population shifts

Migration within countryRapid pace of

urbanizationFrom low growth

regions

Migration between countriesLegal and illegalLikely large in

South Asia 01-June-201214

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CHANGING STRUCTURES (4)

More Mega Cities in Asia

Top 10 Largest Asian Cities in 2025Rank Country Urban agglomeration Population

(millions)

1 Japan Tokyo 37.092 India Delhi 28.573 India Mumbai (Bombay) 25.814 Bangladesh Dhaka 20.945 India Kolkata (Calcutta) 20.116 China Shanghai 20.027 Pakistan Karachi 18.738 China Beijing 15.029 Philippines Manila 14.9210 Japan Osaka-Kobe 11.3701-June-201215

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THE LONG TERM TRENDS:

ASIAN CENTURY OR MIDDLE INCOME TRAP?

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KEY DRIVERS OF ASIAN GROWTHComplex web, mutually reinforcingDramatic change in mindsets

New energies, entrepreneurs, open to ideas

Improving skills, human capitalEducation, improving health

New competitive advantageEg offshoring, low-end manufacturing

Rising investment rateDomestic and foreign investment

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NEW TRENDS IN FUTURE

Recent growth spurring other positivesChanging relativities

China slows, India accelerates, …Rise of laggards: Phils, Myanmar, Bangladesh

Changing structure of competitivenessChina up value ladder; Indian manufacturing

Increasing integrationASEAN Economic Community, Sub-regional

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MASSIVE URBANISATION

Asia’s urban population will nearly double by 2050

Competitiveness, social and political stabilityDepends on quality and

efficiency of urban areasImportant to manage

significant risksInequality, slums and

breakdown of social cohesion

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PROJECTIONS

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ASIAN CENTURY SCENARIOAsia will account for more than half of global output in 2050

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MIDDLE INCOME TRAPA majority of Asian economies still have to demonstrate their ability

Growth tends to become more capital and skill intensive

Middle Income TrapUnable to compete with

low income, low wage economies

Unable to compete with advanced economies in high skill innovations 01-June-201222

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SINGAPORE:

NEW PHASE OF ADJUSTMENT

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SINGAPORE: NEAR TERMRestructuring for new phase of growthNext 2-3 years: slowing, deflating

Slow growth in G-3 will hurtLabour policy more restrictiveReal estate cooling measures

Cost rise temporary, will adjust downCosts and SGD have risen, SGD won’t

weakenRestructuring like 2001-03: wages, rents

downRelocation of activities to Iskandar Region

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SINGAPORE: LONG TERM

Major beneficiary of Asian trendsUnique positioning

Unmatched as hub serving India, ASEANMajor wealth management centre for Asia

ASEAN integration boosts S’pore hubIncreased flow of goods, people, capital

Govt firm commitment to manufacturingWill do max to nurture sector

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CONCLUSIONNear term: risks from global slowdownAsian growth virtually unstoppable

The Asian Century scenario more likelyLong term trends

Urbanisation, Middle Class/new rich,….Increased integration, rise of the laggards

Singapore a major beneficiaryWill adjust its costs down, remain

competitive

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Thank you

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