Asia to Become the Global Engine of Growth

Asia has very strong prospects to become the growth engine of the global economy in 2019. Nevertheless, there are three distinct threats to this very positive outlook for the whole of Asia.  The first is the unpredictability related to trade disputes and the trade war between the United States and China.  The recent spirit of hope seems to have dissipated.  A further worsening of trade relations between the US and China would impact not only Asia but the whole rest of the world.  Hopefully, the two leaders will realise that in a trade war nobody wins, and all lose. 

The price of oil is the second major threat.  Volatility of oil prices will affect Asia’s good prospects, but for as long as volatility is within a reasonable band, in the region from US$ 55,00 to US$ 65,00 per barrel, Asia’s economies can make the necessary adjustments.  This range represents a reasonable balance between consumers and producers.  The third threat to Asia’s otherwise good prospects is posed by any potential weakening of commitment to freer and fairer trade within the Asian region, for example to AFTA, the ASEAN Free Trade Area.  It is important to ensure that both tariff and non-tariff barriers, especially the latter, do not impede the growth of regional trade.  It would be important to actually see through the commitment to the Asia Pacific free trade area, the Trans Pacific Partnership Agreement or TPPA, as concluded during President Obama’s time in office.  Unfortunately, this agreement has been dismantled and there does not appear to be any immediate prospect to resuscitate this agreement. The other major regional free trade agreement, the Regional Comprehensive Economic Partnership (RCEP), appears to be progressing slowly. 

Otherwise, individual Asian countries will continue making the necessary administrative reforms to become more competitive.  In other words, across Asia, we can expect to see further reductions to corporate tax, measures to expedite the approval of foreign investments, to minimise the impact of regulations, and so forth.  Therefore, competition to attract foreign investment will be very sharp in the region.  Moreover, China’s ‘One Belt One Road initiative will have a positive impact, especially in South East Asia and the Mekong river region, by improving infrastructure connectivity.  Improved infrastructure connectivity will lead to much higher growth rates in the entire ASEAN region.

On the political front, overall there are no immediate concerns of new flashpoints in Asia.  In 2019 the South China Sea region will not be any more contentious than it already is, nor will the overlapping historic territorial claims between China and Japan or Russia and Japan boil over into anything more serious.  The differences among nations in the region will be managed in a balanced and even keel manner.  The threat from North Korea has subsided.  While there is no complete resolution, the threat has been diminished compared to 2017 and even to the first half of 2018.  In part this has to be put to President Trump’s credit, but also to the credit of President Moon Jae-in of South Korea.  President Moon Jae-in embarked on a very conciliatory policy towards North Korea and did not seek to, for example, harden the trade embargo on North Korea.  The President of North Korea, Kim Jong-un, has in his turn realised that he needs to come to terms with the rest of the world if he wants to survive.

Pakistan will feel President Trump’s decision to cancel US aid to the country and as a result in 2019 we will see growing domestic instability and Pakistan growing closer to China.  With regard to India, Prime Minister Modi is still popular, but he is under increasing pressure to deliver on his earlier promises.  This will be his biggest challenge.    

In India the BJP government is increasingly under pressure to deliver on its electoral promises, while Prime Minister Narendra Modi appears to be losing his lustre.  The BJP has lost three state elections since 2014, namely in Chattisgarh, Rajasthan and Madhya Pradesh.  It is plausible that non-BJP parties put a united front against Prime Minister Modi in the 2019 general elections.

Abuses of human rights in Asia, for example of the Rohingya in Myanmar, will continue to be of concern in 2019.  There are issues of worry in Southern Thailand as well as Southern Philippines.  Those problems will persist, but they will not boil over into anything more serious than what they already are.

With regard to Europe, all Asian nations regard Europe as an important trading partner, in particular ASEAN nations.  The economies of Europe, whilst they have their own set of problems, not to mention grappling with Brexit, still provide opportunities for Asia to strengthen its economic links with Europe. We should not anticipate anything spectacular, but certainly continued steady growth of trade between Europe and Asia.  China though will probably see a slowing down of its trade with Europe, but that is to be expected as China will work towards increasing its own consumption.  Still, in terms of economic growth rate, China will continue to outperform many other parts of the world and China’s growth will continue to be important for global economic growth. 

In terms of Brexit, the importance of Britain in today’s global context has somewhat diminished compared to what it used to be, certainly in terms of its ability to consume trade and to export.  Competition for trade will be very severe from many countries, so it is not going to be easy for the UK to embark on an independent trade policy with Asia, but they will try to explore this route, while at the same time the UK will continue to grapple with the sheer complexity of Brexit. 

It will also be of interest to see whether the rise of populism and nationalism in Europe will reach Asian shores.  In the case of Malaysia, for example, it already has.  During the general election in May 2018, the then opposition campaigned on a very populist platform and that was one of the major factors of their victory.  Now, after only six months in power, there is much disillusionment in a government that raised great expectations and made unfulfillable promises.  We will see the ramifications of this in 2019.  Already in December 2018 a large peaceful demonstration took place in Kuala Lumpur with more than half a million people taking part.  Such demonstrations indicate that the majority is disaffected by populist promises and expectations blown out of proportion.  The domestic policies of the new government have already led to a marked slowdown in the economic growth of Malaysia, a drop in foreign investment and a flow of funds out of the country.  In other words, populist promises, and high expectations can only take one so far.  More jobs, better standards of living, improved health and education services, infrastructure, reducing the gap between urban and rural areas, among rich and poor, those are the real issues on which Governments must deliver and against which they will be judged, not only in Malaysia but across Asia, Europe and beyond.    

Dato Sri Najib Razak was Prime Minister of Malaysia from 2009 to 2018.