As I had to prepare for some presentations and talks in North America ten days from now, I was spending some time poring over some data from the Asian Development Bank (ADB) and their latest Asia Outlook 2012. The special theme of the report was inequality besides the usual macro analysis, outlook, GDP forecasts. A chapter on inequality does not have the phrase, ‘Political Economy’. Indeed, this phrase is missing in the whole publication itself. Nor is there a discussion of the role of global monetary policy, open capital flows and the implicit targeting of asset prices causing inequality elsewhere in the world.
ADB’s China’s growth forecasts for 2012 and 2013 are 8.5% and 8.7%. Too high.
If Asian governments are sincere about addressing inequality, the good news is that they can do it. Barring few, they have resources. They have savings to invest. China re-orientation – willingly or otherwise – towards domestic demand will finally enable it to become the growth engine for the rest of Asia. It was a growth drag on the rest of Asia until recently. China’s growth, until now, only helped commodity producers to grow. No wonder the situation is turning more difficult in countries like Brazil and Australia.
Interesting news-item this for Brazil. They are removing the floor on the savings rate. Will India take note?
Australia’s Reserve Bank released its quarterly statement of monetary policy for May on Friday. Growth forecasts have been significantly lowered and that too, without explicitly factoring in a more pronounced growth slowdown for China. In their assessment of risk factors, they reckon that China’s attempts to moderate growth to a lower level (while still keeping it high against absolute standards) while deflating a real estate bubble may or may not succeed. Therefore, the risk to their China baseline view is seen as evenly divided on either side of the baseline! I find it hard to accept the logic behind this.
The box-item on Japan electricity power generation and availability deserves to be taken seriously. While the Bank of Japan (BoJ) might be correct to resist the calls for a weaker policy (its latest monetary policy announcement threw just a few bits of useless bone to those clamouring for easier policy), one wonders how long they would or could resist if these factors like power availability worsen the economic environment even further for Japanese corporations.