At the first panel discussion of the Premier Business Leadership Series on Tuesday morning, host Mark Jeffries introduced attendees to a new feature - the Clikapad wireless voting keypad. During each panel presentation throughout the conference, audience participation will be facilitated with polls via the keypads. Jeffries started the first panel discussion with this audience question:
What do you see as the biggest threat for the economy over the next 12 months?
More than 800 attendees were polled and a leading majority answered "The Eurozone." That answer was followed closely by "US gridlock." This poll and its answers were a great segway into the next discussion about the global economic outlook. The panelists included:
- Mikael Hagstrom, Executive Vice President, Europe, Middle East, Africa and Asia Pacific, SAS (moderator)
- Vikram Nehru, Former Chief Economist for East Asia and the Pacific of the World Bank
- Bernard Yeung, Dean and Stephen Riady Distinguished Professor from National University of Singapore Business School
- Johanna Chua, Managing Director of Chief Asia Pacific Economist and Head of Asia Pacific Economic and Market Analysis, Citigroup
- Brett King, Author of BANK 2.0
Mikael Hagstom opened the discussion by asking panelists what they believed the impact would be to Asia as a result of the recent downgrade of the US.
Vikram Nehru responded first with his assessment that there would, of course, be an impact on Asia. But he believed this was not a direct result of the US downgrade, but a response to the turmoil in the markets resulting from the slowed growth in the advanced economies. "This is not something that is going to be short-term, but will continue to the mid-term," he said. "When there is a slow down in the advanced economies, what we see is a coupling with respect to cyclicality around that trend. I expect Asia will decline by about 1/2 percentage point or so, perhaps more, depending upon what happens in the advanced economies."
Nehru also explained that Asia and emerging markets are closing the gap between the advanced markets. "There is a rapid closing of the gap, and that is going to accelerate now in the coming years," he said.
Bernard Yeung agreed and viewed the slowing of growth in the US and the Eurozone as an opportunity for Asia. "We need to invest in productivity," he said. "We need to find some way to wake up - grow up. In the West, we need to go back to investing in productivity and real economic growth, and not just relying on government stimulation. In the East, we need to regenerate the economy and not just rely on government-directed investment driven growth."
According to Johanna Chua, the S&P downgrade of the US has somewhat politically handcuffed fiscal policy in the US. "This means that monetary policy has to be extra accomodative to support growth," said Chua. "Now everyone in the global markets are anxiously awaiting what Bernanke will say Friday at the Jackson Hole meeting."
Chua said that a significant implication of the downgrade and its resultant sell-off is the type of safe-haven asset that buyers are moving toward. In past sell-offs, buyers moved to gold and other precious metals to mitigate their risk. According to Chua, this time buyers are also moving to emerging markets bonds. "This is an opportunity for parts of Asia to become a safe haven," she said. "This could provide an opportunity for more infrastructure investment and a rebalancing of the economy. It could be an opportunity to take advantage of the low-yield environment to invest in higher-return investments. "
Brett King rounded up the discussion on the potential impact of the downgrade on Asia by saying that he believes we are entering a time of global uncertainty. "I agree with Johanna and Vikram as to the measure of risk: Markets we used to consider safe, we now consider uncertain."
"The mechanisms, in respect to the way US markets are operating and the US downgrade, were largely concerns around the political system to manage the debt rather than the debt itself," said King. "This is part of an overall shift in terms of information. You're in an environment where risk is exposed very rapidly. So there is this permanent volatility and whether we are going to get over that hurdle or not and reach an equlibrium is going to take some time to sort out."
The panelists agreed that Asia and the emerging markets have significant potential for growth and should view this opportunity and any future hiccups in the advanced markets as opportunities to rebalance economies and invest in infrastructure and long-term higher-yield projects - not merely manufacturing. This post is part one in a two part series. Look for part two where the panelists discuss the role China may play in the development of emerging markets and the global economy.