Global growth: what is potential and where is it going? 25 ... · to distorted policies, growth...

Global growth: what is potential and where is it going? 25 Feb 2016

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Global growth: what is potential and where is it going?DBS Group Research 25 February 2016

Economics

David Carbon • (65) 6878-9548 • [email protected]

• Markets have worked themselves into a tizzy over a perceived crisis in global growth

• But growth today is running at or above potential in the US, Japan and Europe, and nearly at potential in Asia

• A sharp fall in working age population growth has lowered potential growth in the G3 and Asia and will continue to do so in coming years

• If you think Asia’s growth is slow today, get used to it. Structurally, Asia-10 growth will slow every year for the next 40 years

• Much of the slowdown will owe to rising incomes. Growth slows when things ‘go right’ as much as when they ‘go wrong’

• Even with a much slower growth rate, Asia will be ‘creating’ entire Germanys once every 2.2 years by 2025

Markets have worked themselves into a tizzy over a perceived crisis in global growth. Central banks too. The ECB and BoJ have cut interest rates below zero, territory once thought to be no man’s land. Spend and spend again is the message; save and it will cost you. Last week, the OECD urged them to go lower yet. Act “urgently”, it pleaded, “growth had practically flatlined”. Most currently expect the ECB and BoJ will heed the call. Indeed most think the OECD was preaching to the choir.

Everyone wants faster growth. But the fact is, we’re not likely to see it. We reck-on global growth today is running at or a little above potential. And potential is headed down, not up – growth will be slower two years hence and slower yet two years after that. Why? Two reasons: Productivity and population growth – the two

Nomenclature

Economic areas referred to in this report are defined as follows:

Asia-10: CH, HK, TW, KR, SG, MY, TH, ID, PH, IN

Asia-9: A10 less CH

Asia-8: A10 less IN, CH

Asean-5: TH, MY, ID, PH, SG

Asean-4: TH, MY, ID, PH

Asia Big3: CH, IN, ID

G4: US, EU4, JP, A10

G3: US, EU4. JP

EU4: GE, FR, IT, UK

EU3: GE, FR, IT

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2015 2020 2025 2030 2035 2040 2045 2050

China US

China & US – potential GDP growth % per year


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determinants of economic growth – have slowed a lot in recent years and will con-tinue to fall rapidly in the years ahead. Except for some short-term cyclical wiggles and waggles, and even with some much needed but ultimately one-off corrections to distorted policies, growth isn’t going to go back up. It isn’t even going to “flat-line”. It’s going to go down. Structurally, growth today is as good as it gets.

Let’s be clear: Slower growth isn’t necessarily a bad thing. Not in the ‘save the planet’ sense but in ‘hard’ economic terms. If growth is slowing because population growth is slowing, it’s a false concern. What we care about is growth per person – my income, your wage – not GDP in the aggregate. A small family can be just as rich, or richer, than a large one.

And if growth slows because productivity growth slows, that can be a good thing too. It’s not as ironic as it sounds, at least for emerging market economies. When developing economy incomes go up, productivity growth goes down. As discussed below, it’s the biggest reason why high-income economies grow more slowly than low-income ones. Thus, to the extent slower growth follows from higher incomes, it’s good news, not bad.

The bottom line is this: Whether you like it or not, whether central banks try to prevent it or not, and whether it happens for good reasons or bad, growth is going to go down in the years ahead, not up. In the US, we reckon potential growth has already fallen to 1.9% and will slide to 1.6% by 2025 before stabilizing (chart on page 1). There, falling working-age population growth is the sole reason why. In China, history suggests potential growth today is about 6.4%. Falling productivity growth (/ higher incomes) and a rapid drop in working age population will lower China’s structural growth rate to 5.5% by 2020 and to 4.9% by 2025. Looking for a big ‘rebound’ in China? Don’t.

Overall in the Asia-10, we reckon potential growth will drop to 5.7% by 2020 (from 6.3% currently), and to 5.2% by 2025 (chart above). In the G3 (US, EU4 and JP) growth will drop to 1.3% from 1.6%. In its protestations last week, the OECD said that without action global growth might not pick up for several years. We reckon that even with action, growth is going down before it goes up.

The nuts and bolts – population and productivity

When it comes to GDP and its growth, the arithmetic is simple and brutally inflex-ible. Since GDP is output-per-worker times the number of workers, GDP growth is the sum of output-per-worker growth and labor force growth. Thus, if a (probably developed) economy grows by 3% and population (or, more precisely, the labor force) grows by 2%, output-per-worker – productivity – grew by 1%.

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Potential GDP growth – US, JP, EU-4 and Asia-10% per year

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If you think growth is slow today, get used to it. It’s only going down from here


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When developing economy incomes go up, growth goes down. ‘Twas ever thus

In fast-growing Asia, the sums are the same but the relative contributions have his-torically been skewed dramatically the other way. A ‘young’ economy might grow by 9% and its population by 2%, implying productivity growth of 7%. While in this example productivity accounted for 7/9ths (77%) of GDP growth, historically it has been even higher. On average, productivity growth has accounted for 80%-85% of all economic growth in Asia since the end of WWII [1].

More on this below. For now, the point remains: how fast an economy can grow depends on how fast productivity can be raised and on how fast the population / labor force grows. And while some might be surprised to learn that productivity growth has delivered 85% of Asia’s GDP growth since WWII, the really eye-popping changes in recent years have been related to population / demographics. So let’s begin there.

Revenge of the demographic dividend

Most are aware that population growth has fallen palpably in most parts of the world in recent years. They’re not surprised to see a chart like the one below from the UN. According to the latest (2015) revision to its World Population Prospects [2], China’s population growth fell to a mere 0.5% in 2015 from 1.25% in 1996 and 1.9% in 1990. US population growth is barely faster than China’s, having dropped to 0.75% in 2015 from 1.25% in 2000. Especially notable is Japan, where population growth fell below 0.5% in 1990, below zero in 2010 and is currently running at a rate of negative 0.2% per year.

But falling population growth is only half the story. Populations are growing older too. Back in 1975, the median age in China was 20; today it is nearly double that. In the Asia-10 it has doubled – to 40 from 20 on the same time frame. In Hong Kong, the median age today is 44, in Singapore and Korea it is 41 and in Japan it is 47. In all 4 countries, it is 7-9 years higher than in 2000 (see Appendix I).

Plainly, older populations mean fewer workers are bringing home the bacon for everyone else. Not only is there ‘less to go around’ but that typically means less is saved and invested too. Less investment means less growth, end of story.

In the jargon, the ‘demographic dividend’ from expanding populations in decades past is now running in reverse. The proportion of those of working age in the total population is peaking in many countries as we speak – or indeed peaked a couple of

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What matters is in-come, not GDP per se


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years ago (charts below). This share will fall sharply in the coming years throughout most of Asia, Japan, Europe and the US. Especially sharp declines are already being seen in China, Korea, Hong Kong, Taiwan and Singapore and they will continue, according to the UN, for another 25 years. Within Asia, only India and the Philip-pines will be spared, although Indonesia’s working age share should at least remain stable for another decade (chart bottom left).

The implications for potential growth are clear. If population growth is falling and the population is getting older at the same time, it must mean that the growth in working age population is falling even faster than the total. And it’s the latter that matters to potential GDP growth because, well, it’s the working age guys and gals who go to work everyday.

Working age population growth has indeed slowed far more dramatically than population growth overall throughout most of Asia and the G3. For any given country, whatever one used to think was a reasonable estimate of potential growth probably has to be shaved a good deal lower. How much lower?

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Asia – demographic dividend reverses

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G3 – demographic dividend reverses


The ‘demographic dividend’ of decades past is now running in reverse


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In China, (chart below left), people talk about population growth heading towards zero by 2025. Big deal. Working age population growth (WAPG) is practically zero today and it will be negative 0.5% before you know it. Among other things, that means every drop of GDP growth will have to come from productivity growth alone.

By 2020, 4 years from now, the first half-a-point of productivity growth will be spent just making up for an outright drop in the working age population before GDP grows at all. Productivity will probably – probably – come to the rescue. But by 2025, potential GDP growth will have fallen by another 1.5 percentage points and half of that will have come from demographics alone. Higher incomes and falling productivity growth will, with luck, have accounted for the other half.

What about Hong Kong? Here again, total population growth deceives. It appears that growth in the latter of 0.6% growth would support potential GDP growth for 10-15 more years (chart below right). But working age population growth is already zero and headed to -1.25% by 2025. Hong Kong is a high income country, which means it’s not easy to raise productivity. GDP growth of 2%-2.5% will be dif-ficult to attain over the coming decade.

Singapore is almost in the same boat (chart bottom left). Total population growth is falling fast but that of working age is falling much faster. WAP growth is still a

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Working age popula-tion growth is falling much faster than population growth overall


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comparatively high 1.4% per year. But in 8 more years that will have fallen to zero and thereafter, as in China, productivity gains will have to deliver every drop of GDP growth the country hopes to enjoy. Korea’s WAPG (bottom right of previous page) is still adding a half a point to GDP growth but by 2025 it will be subtracting a full point from potential GDP growth every year.

Japan? Here everyone howls that population is already falling at a rate of 0.2% per year. That’s but one-fifth of the real problem – the working age population is dropping by 1% per year (chart above left).

We’ll discuss this more below but consider the following for a moment. It’s normal to think of productivity growth in a high-income country (like Japan or the US) maxing out at about 1.5% per year. In fact, worryingly, it has been lower than that throughout much the developed world for the past 20 years. But assume for the sake of argument that Japan maintains productivity growth of 1.5% per year – a WAPG of minus 1% then puts potential GDP growth at 0.5%.

As many will know, that is precisely what Japan’s economy grew by last year and a good deal less than the 0.9% that consensus expects it to grow by in 2016. If consensus is correct, Japan’s growth will run 40% above potential this year. Why is everyone fretting over ‘slow growth’ in Japan? Why is the BoJ pushing interest rates into negative territory when consensus expects 2016 growth to be 40% higher than potential?

Finally, the US (chart above right). The (post-WWII) baby-boomers started reaching retirement age 5-6 years ago and working age population growth is now falling like a rock. Back in 2000, at the peak of the dotcom bubble, working age popula-tion growth was running at 1.3% and adding that much to potential GDP growth. Today it’s growing / adding a full point less.

If one again takes 1.5% as a reasonable productivity target for an advanced country like the US, today’s 0.4% WAPG means potential GDP growth in the US is only 1.9%. Just like in Japan, consensus expects another year of ‘painfully slow’ growth in the US. And just like in Japan, the US is already growing a little faster than potential. Potential growth will slow further. By 2025, the UN reckons WAP growth in the US will drop to 0.1%. If productivity can be held at 1.5%, potential will have slowed to 1.6% per year. If markets are in a tizzy today, where will they be nine years hence?

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Potential growth in Japan today is about 0.5%. In the US, it is 1.9%


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Productivity

Falling WAP growth is putting a big dent into GDP growth throughout the world and that will only deepen over the coming decade. In Asia, with luck, falling pro-ductivity growth will be an even bigger force driving slower GDP growth.

When developing economy incomes go up, productivity goes down. ‘Twas ever thus. Why? At early stages of development, incomes and technological levels are low compared to developed economies. The easiest way to raise productivity is to borrow techniques, methods and capital equipment from countries that developed them 10, 20 and 30 years earlier. Why re-invent the wheel when you can buy an old one cheaply? Foreign techniques and equipment allow a developing economy to raise output almost immediately and low wages mean the output can be readily sold into global markets. Output and incomes jump sharply.

But to keep incomes growing, a developing economy has to raise the technology bar again. Techniques, machinery and ideas developed 20 years ago are not as cheap as those developed 30 years ago. You get less bang for the buck. More-over, local wages are now higher so it’s tougher to break new ground (steal market share) in global markets. For both reasons, the second jump in productivity and wages is smaller than the first. The third less than the second, and so on.

Productivity and wage growth continue to slow as local incomes and education and technological levels get closer and closer to those of the globally most advanced countries. Ultimately, productivity growth has to come from raw research and de-velopment, and these gains come grudgingly and sporadically. In the post-war pe-riod, growth in output per person in the developed economies has averaged only about 1.75% per year and more recently it has fallen well short of that [3].

Most of Asia remains far from the ‘technological edge’ of the developed world and productivity growth is still 3-4 times higher than in developed countries. Neverthe-less, as incomes and technological levels go up, productivity and GDP growth will go down. It’s one of the prices of success.

The charts below show the income/productivity paths for some of Asia’s more suc-cessful development cases from the post-war period. Japan, Hong Kong, Singapore, Taiwan and Korea can all be considered to have made the jump to developed coun-try status and all have watched productivity growth fall as an integral part of the process. Asia’s lower income countries will experience the same drops in productiv-ity if they continue to grow successfully in the years ahead.

Growth falls when things ‘go right’ as much as when things ‘go wrong’

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If you combine all the Asian economies together into a single chart like the one below, two key features of post-war development experience stand out. The first is the falling productivity growth that accompanies rising incomes discussed above. Second, there is very clearly a lot more volatility at the lower end of the income scale [4]. This is a good illustration of what most emerging market investors have long known to be true – high growth / low income countries are riskier bets. They offer greater growth – hence greater returns – but the greater volatility means you need a longer time horizon to invest safely there.

Investors often ask which Asian country they should invest in. Since even today the Asia-10 countries span the entire income spectrum (and will for years to come; see chart at top of next page), the answer depends entirely on your risk/reward pro-file. Are you looking for high growth-high risk? Aim left. Low growth-low risk? Lean right. In Asia, there’s something for Junior, for Grandma and for everyone in-between.

Potential GDP growth – marrying productivity and demographics

Come back to the productivity vs income chart below. If you use the black historical trend line there as a guide, you can plot out a reasonable expectation for produc-tivity growth for the Asia-10 countries as they (continue to) develop in the years

Growth in low income countries is more volatile than in high income ones

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ahead. Add that to the UN’s projections for working age population growth and you’ll get a pretty good estimate for total GDP growth for the Asia-10 countries over the coming decade(s) [5] [6].

How ‘bad’ will Asia’s slowdown be? Pretty bad. Start with China, the country every-one worries the most about. At a per-capita income of US$8000 in 2015, the Asian experience suggests China’s productivity growth should be about 6% per year. Add to that a working age population growth of 0.4% and potential growth comes to 6.4% per year – a bit below China’s actual growth rate of 6.9% last year. Plainly, Asia’s history suggests the fall in GDP growth in China to 7-odd percent from 10% just a few years ago was long overdue.

But here’s the thing – if you’re fretting about China’s growth being slow today and slowing further tomorrow, fret no longer – it’s virtually guaranteed. By 2020, one should reasonably expect that growth there will have slowed to 5.5% and, by 2025, to about 5%. As the chart below shows, about half the drop will follow from a negative WAPG by 2019 and half will follow, naturally and necessarily, from rising per-capita incomes.

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Asia-10 growth will follow a similar, though somewhat less steep, trajectory than China’s because declines in WAPG and productivity growth will be less dramatic. Not everywhere, however. In Korea, (chart below left) productivity growth has al-ready slowed dramatically from the Tiger days of the 1960s, 70s and 80s. But WAP growth there will drop very sharply over the next 4 years and will fall to nearly mi-nus 1% by 2025. Potential GDP growth, currently about 4% per year, will drop to 2.8% and 1.5% by 2020 and 2025, respectively.

In Singapore (chart below right), per-capita GDP is already as high as in most devel-oped economies and we assume, generously, that productivity growth won’t fall be-low the 1.5% long-run average rate that has prevailed in these countries [7]. Even so, a sharp fall in WAP growth will likely lower Singapore’s potential GDP growth to 2% by 2020 and to 1.2% by 2025. Singapore is in the midst of an arduous ten-year restructuring exercise aimed at lifting productivity growth. But it’s already high income and falling WAP growth mean that if GDP growth is to stay above 2%, the struggle is far from over.

India (bottom left) is the one country in Asia where demographics continue to favor growth. It is also home to Asia’s lowest per-capita income, which means productiv-

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ity growth can stay high (techniques can be borrowed from abroad) for many years to come (see chart at top of page 9). India’s potential GDP growth will fall by only 6-tenths of a percentage point over the coming decade. The bad news is, India is still not performing up to the potential of its Asian peers. At an income level of US$1775 per person in 2015, GDP should be growing closer to 8.5% per year than the 7.4% it grew by in 2015 and the 7.8% we expect it to grow by this year.

For the Asia-10 overall (bottom right of previous page), two points should be made. First, as in India’s case, the region as a whole is underperforming its potential. His-torical precedent suggests Asia-10 GDP should have grown by 6.3% in 2015 rather than the 5.9% that it did. The region is running 6% below par. This is a waste that low income countries cannot afford and should not accept.

But the converse is that Asia today is running at 94% of potential. While everyone is fretting about a global growth crisis with a big focus on China, few seem to real-ize that Asia is running pretty close to potential and China may in fact be running a little faster than that. Moreover, given Asia-10 per-capita income of $5700 and the volatility in growth associated with such an income level discussed above, it’s not clear that the 6% gap between potential and actual growth is anything but noise.

Second, sadly or gladly, 6% gap or no, potential growth in the Asia-10 is going no-where but down over the coming years. If you think growth is slow today, get used to it. Ten years hence, it will be a full point lower. (see Appendix II for remaining country-specific charts.)

Global potential

The same summing of productivity and WAP growth may be undertaken in the G3 – the US, Japan and EU4 – except here we make the developed country assumption that productivity growth can be maintained at the long-run average rate of 1.5% per year [8]. Even with this, falling WAP growth in the US will take growth there from 1.9% in 2016 to 1.6% by 2020, where it will stay until 2025 (chart below left).

Think Japan’s 2015 growth of 0.5% was slow? Maybe it was. But it was smack on potential, thanks to negative WAP growth of 1%. The good news here is that Ja-pan’s working age population won’t fall so rapidly over the coming decade (but it will still decline). Potential GDP growth will edge back up towards 0.8% by 2025. Alas, thereafter it heads straight back to no-man’s land (chart below right).

Potential in Europe? We reckon it is 1.6% in the EU4 (GE, FR, IT and the UK), pre-cisely what consensus expects growth there to be this year [9]. Once again, worries about a growth crisis don’t seem to jive with what should be expected.

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Slow is the new fast

Markets have worked themselves into a tizzy over slow global growth. In the US, consensus expects a mere 2.1% growth this year. But not only is that absolutely unchanged from the past five years, it looks to be 11% faster than potential (table below). In Japan, consensus expects 0.9% GDP growth this year. That’s better than last year. And the year before that. And fully one-third faster than what can be sustained over the longer-haul. Crisis?

In Europe – GDP is expected to grow by 1.6% this year. Again, that’s better than last year and the year before that. And it’s smack on potential. No crisis here either. Growth in Asia in running 6% below par. That’s not good but it’s not crisis. And it could just be noise.

The bottom line is, there does not appear to be a ‘growth crisis’ anywhere in the G3 or G4. Thanks to falling growth in working age populations – and to steadily rising incomes in Asia – slow is the new fast. The G3 – US, JP, EU4 – is running better than 1 and 2 years ago and 14% faster than potential. The G4 is running 7% faster than potential. If you’re waiting for something faster than that, don’t. This is as good as it gets.

How many Germanys?

The message should be clear. Growth may be slow but it only goes down from here. It will fall especially rapidly in the Asia-10 because incomes are rising briskly and be-cause working age population growth is falling especially quickly. Does this mean Asia is no longer the place to invest?

Not in the slightest. Asia is still growing 4 times faster than the G3 and even 25 years from now it will still be growing twice as fast. When you think about the dollar value of that gap, added up year after year, it’s a massive amount of money.

To illustrate just how significant it is, we often talk about how Asia’s growth amounts to creating an entire Germany, right here in Asia, every 3-4 years. Last year for example, Asia-10 GDP grew by more than a trillion US dollars. With Germany GDP equal to $3.3trn, it thus takes Asia 3.1 years to add a Germany to the world’s economic map.

Growth in the G3 is better than last year and the year before that. Moreover, it’s running 14% faster than potential. Where’s the crisis?

G4 – potential growth and 2016 forecasts

WorkingAge Potential

Productivity Pop'n GDP Consensus Fcast / Wt in Wt inGrowth Growth Growth forecast potential G3 GDP G4 GDP

% % % % Ratio % %

USA 1.5 0.4 1.9 2.1 1.11 51 34Japan 1.5 -1.0 0.5 0.9 1.68 14 9EU-4 1.7 -0.1 1.6 1.6 0.99 35 23

Asia-10 5.3 1.0 6.3 5.9 0.94 0 33

G3 1.6 1.8 1.14G4 3.2 3.1 1.07

Note: G3 = US, JP, EU-4G4= G3 + Asia-10


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What is especially eye-opening is the fact that, even with considerably slower growth in the years ahead, the time it takes for Asia to put a Germany on the map will grow shorter and shorter, not longer and longer. By 2020, Asia’s growth will

0

1

2

3

4

5

6

7

2015 2020 2025 2030 2035 2040

Potential GDP growth – US, JP, EU-4 and Asia-10% per year

G3: 1.6%

Asia-10: 3.9%

China: 2.9%

1.00

2.00

3.00

4.00

5.00

6.00

7.00

2015 2020 2025 2030 2035 2040

Potential growth (%)

Yrs required to create a Germany

Asia-10 – potential growth rate and years required to create a Germany

percent growth rate and years required

3.9%

1.5 yrs

have slowed to 5.3%. But it will be creating a Germany every 2.6 years. By 2025, growth will have slowed further but it will take only 2.2 years to create a Germany. By 2040, growth will be down to 3.9% per year. And Asia will be putting a Germany on the map every year and a half.

Is Asia really slowing down? Or is it, in some truer sense, speeding up? It’s a fair question to ask.

Even with slower and slower growth, the time it takes for Asia to create a Germany will grow shorter and shorter, not longer and longer.

Is Asia slowing down or speeding up?


14

Notes:

[1]

[2] http://esa.un.org/unpd/wpp/

[3]

0

10

20

30

40

50

60

70

80

90

100

64 69 74 79 84 89 94 99 04 09 14

Asia-10 – share of GDP growth due to productivity growthper cap GDP growth as % of total GDP growth

[4] Indeed there is so much volatility at very low incomes that the chart excludes in-comes below $2000 per person (in constant 2014 USD).

[5] One should not ascribe much precision to the trendline. The wide dispersion of productivity growth seen in this chart, and especially in the individual country charts just above it, illustrate a key problem with productivity and its measurement. True productivity growth does not jump around like it appears in these charts. Measured productivity growth does, however, and this is a big problem for analysts and poli-cymakers.

Conceptually, productivity is purely a technical, supply-side concept – it has nothing to do, or at least nothing directly to do, with demand. It gauges how many widgets can you make for a dollar or many words per minute you may type. These kinds of figures do not jump around much on a year-to-year basis.

But measured productivity can jump wildly, thanks to demand. At the macro or sectoral level, productivity is measured by the taking the ratio of GDP (or sectoral output) to manhours of work. John might be able to weld 25% more steel beams this year than he could last year but if demand for steel beams is down, he might not weld any. And measured productivity in the construction industry would look awful even though in truth it had risen by 25%. Thus, demand can make an utter

Advanced country productivity growthper-capita GDP growth, % per year

GE FR IT UK US JP G3 EU-4

Avg growth 1970-2014* 1.88 1.64 1.42 1.93 1.72 1.79 1.74 1.75Avg growth 1990-pres 1.47 1.01 0.34 1.52 1.37 0.98 1.25 1.15

* 1980-present for Japan, which had a relatively much lower income level until thenand was importing a lot of productivity growth from the West


15

Sources:

Population data are from the UN and the US Census Bureau. Other data are from CEIC Data, Bloomberg and DBS Group Research (forecasts and transformations).

mess of a purely supply-side concept as the wide dispersion of data points in the charts above shows.

The bottom line is it takes 10-20 years to see where true productivity has gone. Any-one pretending to claim that productivity growth rose or fell to 2.6% this year from 2.2% or 2.8% last year is doing just that: pretending. At a national / macro level, It is virtually impossible to know what true productivity growth is doing in the short-run. All one can do is look at the trend lines in the charts such as those above and, 10-15 years after the fact, say ‘things went okay’ or ‘back to the drawing board’.

[6] The wide dispersion in the productivity growth vs income charts also means there is lots of room for individual countries to out- or under-perform the trend. The Asian Tigers – SG, HK, KR, TW – have historically outperformed and a China, say, could too over the coming decade(s) for many reasons. Alas, no country that has succeeded in raising its income levels over time has been able to prevent a downward sloping path in productivity growth over the same period.

[7] Ibid. [3].

[8] Ibid, [3].

[9] Consensus currently expects full year GDP growth of 1.7%, 1.3%, 1.2% and 2.1%, respectively, in Germany, France, Italy and the UK.


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45

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70

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55

75 80 85 90 95 00 05 10 15 20 25 30

HK– median age and share of working age popage in years % of total

Median age (LHS)

Working age pop as % of total (RHS)

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70

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75 80 85 90 95 00 05 10 15 20 25 30

Spore – median age and share of working age popage in years % of total

Median age (LHS)


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70

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40

45

75 80 85 90 95 00 05 10 15 20 25 30

China – median age and share of working age popage in years % of total

Median age (LHS)


40

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55

60

65

70

15

20

25

30

35

40

45

50

75 80 85 90 95 00 05 10 15 20 25 30

Korea – median age and share of working age popage in years % of total

Median age (LHS)


40

45

50

55

60

65

70

15

20

25

30

35

40

45

50

75 80 85 90 95 00 05 10 15 20 25 30

Thai – median age and share of working age popage in years % of total

Median age (LHS)


40

45

50

55

60

65

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18

20

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26

28

30

32

34

75 80 85 90 95 00 05 10 15 20 25 30

Indon – median age and share of working age popage in years % of total

Median age (LHS)


Appendix I: median age and share of working age population in total population


17

Appendix I (cont’d): median age and share of working age population in total population

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75 80 85 90 95 00 05 10 15 20 25 30

Phils – median age and share of working age popage in years % of total

Median age (LHS)


40

45

50

55

60

65

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18

20

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24

26

28

30

32

75 80 85 90 95 00 05 10 15 20 25 30

India – median age and share of working age popage in years % of total

Median age (LHS)


40

45

50

55

60

65

28

30

32

34

36

38

40

42

75 80 85 90 95 00 05 10 15 20 25 30

US – median age and share of working age popage in years % of total

Median age (LHS)


50

52

54

56

58

60

62

64

28

33

38

43

48

53

75 80 85 90 95 00 05 10 15 20 25 30

Japan – median age and share of working age popage in years % of total

Median age (LHS)


40

45

50

55

60

65

18

23

28

33

38

43

75 80 85 90 95 00 05 10 15 20 25 30

Asia10 – median age and share of working age popage in years % of total

Median age (LHS)


50

52

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58

60

62

32

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50

75 80 85 90 95 00 05 10 15 20 25 30

EU3 – median age and share of working age popage in years % of total

Median age (LHS)



18

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62

64

30

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75 80 85 90 95 00 05 10 15 20 25 30

GE – median age and share of working age popage in years % of total

Median age (LHS)


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75 80 85 90 95 00 05 10 15 20 25 30

FR – median age and share of working age popage in years % of total

Median age (LHS)


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75 80 85 90 95 00 05 10 15 20 25 30

IT – median age and share of working age popage in years % of total

Median age (LHS)


52

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57

58

59

60

30

32

34

36

38

40

42

44

75 80 85 90 95 00 05 10 15 20 25 30

UK – median age and share of working age popage in years % of total

Median age (LHS)


Appendix I (cont’d): median age and share of working age population in total population


19

Appendix II: structual GDP growth determinants

-2

-1

0

1

2

3

14 18 22 26 30 34 38 42 46 50

Prod;y growth

WAP growth

GDP growth

HK – structural GDP growth % per year

-1

0

1

2

3

4

5

6

7

8

15 20 25 30 35 40

Prod'y growth

WAP growth

GDP growth

Malaysia – structural GDP growth % per year

-2

-1

0

1

2

3

4

5

6

7

8

15 20 25 30 35 40

Prod'y growth

WAP growth

GDP growth

Thailand – structural GDP growth

% per year

0

1

2

3

4

5

6

7

8

9

15 20 25 30 35 40

Prod'y growth

WAP growth

GDP growth

Indonesia – structural GDP growth

% per year

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1

2

3

4

5

6

7

8

9

15 20 25 30 35 40

Prod'y growth

WAP growth

GDP growth

Philippines – structural GDP growth

% per year

-2

-1

0

1

2

3

4

5

15 20 25 30 35 40

Prod'y growth

WAP growth

GDP growth

Taiwan – structural GDP growth

% per year


20

Appendix II (cont’d): structual GDP growth determinants

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5

6

7

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9

15 20 25 30 35 40

Prod'y growth

WAP growth

GDP growth

India – structural GDP growth % per year

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

15 20 25 30 35 40

EU4– structural GDP growth

% per year

Productivity growth

GDP growth

WAP growth


21

GDP & inflation forecasts

Policy & exchange rate forecasts

Market prices

GDP growth, % YoY CPI inflation, % YoY

2012 2013 2014 2015 2016f 2012 2013 2014 2015 2016f

US 2.2 1.5 2.4 2.4 2.1 2.1 1.5 1.6 0.2 1.3Japan 1.7 1.4 0.0 0.5 0.7 0.0 0.4 2.7 0.8 0.3Eurozone -0.7 -0.4 0.9 1.4 1.4 2.5 1.3 0.4 0.0 0.8

Indonesia 6.0 5.6 5.0 4.8 5.2 4.0 6.4 6.4 6.4 5.7Malaysia 5.6 4.7 6.0 4.8 4.5 1.7 2.1 3.1 2.1 2.8Philippines 6.7 7.1 6.1 5.8 6.1 3.2 2.9 4.2 1.4 2.5Singapore 3.4 4.4 2.9 1.8 2.1 4.6 2.4 1.0 -0.5 0.5Thailand 7.3 2.8 0.8 2.8 3.4 3.0 2.2 1.9 -0.9 1.5Vietnam 5.0 5.4 6.0 6.7 6.7 9.3 6.6 4.1 0.6 1.8

China 7.7 7.7 7.3 6.9 6.5 2.6 2.6 2.0 1.5 1.5Hong Kong 1.7 2.9 2.3 2.4 2.4 4.1 4.3 4.4 3.0 3.0Taiwan 2.1 2.2 3.9 0.8 1.8 1.9 0.8 1.2 -0.3 0.6Korea 2.3 2.9 3.3 2.6 3.0 2.2 1.3 1.3 0.7 1.3

India* 5.6 6.6 7.2 7.4 7.8 7.4 9.5 6.0 5.0 5.4

* India data & forecasts refer to fiscal years beginning April; prior to 2013.

Source: CEIC and DBS Research

Policy interest rates, eop Exchange rates, eop

current 1Q16 2Q16 3Q16 4Q16 current 1Q16 2Q16 3Q16 4Q16

US 0.50 0.50 0.75 1.00 1.25 … … … … …Japan 0.10 0.10 0.10 0.10 0.10 112.3 112 113 114 114Eurozone 0.05 0.05 0.05 0.05 0.05 1.102 1.14 1.13 1.12 1.12

Indonesia 7.00 7.00 7.00 7.00 7.00 13,422 13,433 13,612 13,793 13,703Malaysia 3.25 3.25 3.25 3.25 3.25 4.21 4.18 4.32 4.45 4.39Philippines 4.00 4.00 4.00 4.25 4.25 47.6 47.5 48.0 48.4 48.2Singapore n.a. n.a. n.a. n.a. n.a. 1.40 1.40 1.42 1.44 1.43Thailand 1.50 1.50 1.50 1.50 1.50 35.7 35.7 36.2 36.6 36.4Vietnam^ 6.50 6.50 6.50 6.50 6.50 22,325 22,287 22,389 22,492 22,441

China* 4.35 3.85 3.85 3.85 3.85 6.53 6.61 6.65 6.68 6.66Hong Kong n.a. n.a. n.a. n.a. n.a. 7.77 7.79 7.79 7.79 7.79Taiwan 1.63 1.50 1.50 1.50 1.50 33.2 33.0 33.4 33.8 33.6Korea 1.50 1.50 1.50 1.50 1.50 1,236 1,193 1,212 1,232 1,222

India 6.75 6.75 6.50 6.50 6.50 68.6 67.5 68.6 69.6 69.1

^ prime rate; * 1-yr lending rate

Policy rate 10Y bond yield FX EquitiesCurrent Current 1wk chg Current 1wk chg Index Current 1wk chg

(%) (%) (bps) (%) (%)

US 0.50 1.75 -7 97.5 0.7 S&P 500 1,930 0.2Japan 0.10 -0.05 -10 112.3 0.8 Topix 1,285 0.2Eurozone 0.05 0.15 -12 1.102 -0.8 Eurostoxx 2,683 -3.2

Indonesia 7.00 8.28 21 13418 0.7 JCI 4,658 -2.3Malaysia 3.25 3.95 4 4.21 0.2 KLCI 1,664 0.0Philippines 4.00 3.83 -8 47.6 0.1 PCI 6,769 0.2Singapore Ccy policy 2.19 -4 1.402 0.1 FSSTI 2,620 0.2Thailand 1.50 2.04 -2 35.7 -0.2 SET 1,332 3.3

China 4.35 … … 6.53 -0.1 S'hai Comp 2,929 2.1Hong Kong Ccy policy 1.37 -8 7.77 0.2 HSI 19,192 1.4Taiwan 1.63 0.86 0 33.2 0.4 TWSE 8,283 0.8Korea 1.50 1.82 3 1236 -0.7 Kospi 1,913 1.5

India 6.75 7.83 9 68.6 -0.3 Sensex 23,089 -1.3

Source: Bloomberg


22

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Global growth: what is potential and where is it going? 25 ... · to distorted policies, growth...

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