The French Chamber of Commerce in Singapore9th November 2012

Manu BhaskaranCentennial Group

OUTLOOK 2013:

CHALLENGES AHEAD

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IN A NUTSHELL

Mixed outlook in 2013: caution needed Global economy: healing but fragile

US: Fiscal drag, over-stretched consumer Middle East risks at critical point

Asia hurting from global impact Chinese economy slowing But Asian resilience from structural positives SE Asia is looking relatively better

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GLOBAL IMPACT ON ASIA:

DO NOT UNDER-ESTIMATE THE

DOWNSIDE RISKS

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KEY DRIVERSDeterminants of demand for Asian exports weak

Country % world GDP

Outlook

US 23.1 Key housing, labour markets healingBUT watch fiscal drag, savings rate

Eurozone 19.3 Fiscal drag; potential political stresses

China 9.3 Bottoming outBut imbalances, excesses remain risks

Japan 8.7 Recovery from disasters over, new drags from power, politics

Other emerging

8.3 Worse: clear signs of slowdown

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SNAPSHOT OF GLOBAL ECONOMY

Despite market optimism, global economy looks fragile

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US: MIXED, REMAINS FRAGILE

Foundations for recovery built but … Some key areas recovered, not all

+: Credit (weakly), housing (tentatively) +: Creative destruction/re-engineering -: Savings rate: still 3.5-4.5% not 8% needed

But drags remain Fiscal drag in 2013 will be large Political gridlock Eurozone hurts Housing could be set back temporarily

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EUROZONE: PROGRESS BUT RISKY

Expect more episodes of stress Eurozone actions limit tail risks

Political commitment clearer Addressing flaws in original set up Firepower built up

But too late to help economy Fiscal drag is strong, 2012-13

Political backlashes are mounting Spain: secession fears raised, Catalonia

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JAPAN: NOT AS BAD

Some positives building, cyclical risks Short term: negative to Asia

Strong Yen: BOJ has to act to weaken Exports down, power, politics uncertain Resilience from job market

Long term positives are better Sales tax increase TPP will help open up Japan Relocation to SE Asia out of China/Japan

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GEO-POLITICAL RISKS

Key nations facing unavoidable stresses Syria: civil war spillovers

Turkey, Lebanon, Iraq Iran nuclear: some Israeli action likely Saudis facing simultaneous challenges

Neighbors: Yemen, Bahrain Succession Internal stresses

Egypt: long power struggle ahead9

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BOTTOM LINE ON GLOBAL IMPACT

Early 2013 highly risky Mainly because US, EU at riskiest then 2H 2013 could see bottoming out

As the worst is over Liquidity and monetary policy not enough

Fiscal drag, restructuring, politics Risk of unintended consequences rising

Massive liquidity can also be destabilising

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PAN-ASIAN TRENDS

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ASIA IN GOOD SHAPE

Global slowdown will hurt in 1H13 Trade, investment, commodity prices,… The real key is resilience: better

Long term trends surge continues Spillovers from China, India growth Investment/GDP to rise Urbanisation and rise of middle class More benefits from integration Rise of the laggards

Short term risks; long term positives

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ASIAN RESILIENCE IS HIGH

Updated Resilience Index shows improved resilience

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COUNTRY THEMES

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CHINA: ECONOMIC CHALLENGES

Activity indicators bottoming PMIs rebound to weak growth

Corporate sector feeling the hit Corporate cashflows weakening Anecdotal evidence of distress

Inventory build up remains huge Cotton, coal, steel, homes, autos, copper…

Policy response is key

Risks to growth remain high

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INDIA: OFF THE BOTTOM?

Economy risky but may bottom out soon Political risks

More reforms but risks remain External pressures have built up

Oil price fall would help External demand, capital flows

Some positives Investment hurt by business worries Policy easing: rates cut, Rupee has fallen

Supply side forces remain positive16

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INDONESIA: HOW RESILIENT?

Some slowing inevitable Not immune to global slowdown

Exports still falling Commodity prices down

Domestic economy firm Consumer Confidence Index rising Imports of machinery, appliances, autos up

Corporate risks rising Inflation risks remain but under control

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SINGAPORE: TOUGH TIMES AHEADMix of cyclical and structural challenges Global slowdown will hurt further

Exports, industrial production weakening Regional demand helps

Malaysia, Indonesia Some domestic factors support growth

Infrastructure spending: MRT, HDB,… Rising wages support consumer

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SINGAPORE: TOUGH TIMES?But rising costs are a major headwind Labour policies tightening

Rising wages, less flexibility Business costs high despite slowdown

Companies have little respite Local companies forced to restructure

Effects could be deflationary Real estate price pressures a challenge

Policy tightening not enough?

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MALAYSIA: MAKING A COMEBACK?Underlying economy better but politics? Near term: hit from global demand

Exports weakening, commodity prices down Offset by election-related spending

Structural improvements ETP roll-out boosting investment Reforms spurring FDI

Key is politics Elections due by end April

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THAILAND: MOVING ON FINALLY?After 7 years of crisis, some upside Near term: no escape from downside

Manufacturing hit But policy helps: rate cuts, fiscal spending

Longer term: upsides Massive infrastructure projects Greater Mekong Sub-Region

Will political risks disrupt this? Risks remain high in near term

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CONCLUSION

A tale of two halves

Early 2013 could be tough Proliferation of global headwinds

Later part of 2013 could be better As worst of fiscal drag over As painful adjustments finally produce results

Wild card could be Mid East risks

Thank you

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