EFTA01458973.pdf

8 December 2015 World Outlook 2016: Managing with less liquidity has been disappointing, with Singaporeans by and large choosing to keep family size small. We think that the Chinese authorities will also find that once set in practice, the culture and social attitude in keeping family size small is very difficult to reverse. Opening up to more immigration could reduce the headwind to aging, but that comes with its own set of political sensitivities and social implications. We reckon that most aging societies in Asia will have to accept the phenomenon and deal with recalibrating public finance, social safety net, and the service sector to take this into account. Not all economies in Asia are facing down the barrel of inexorable aging. India, Indonesia, and the Philippines, with 1.5bn people among them, should have riigure 3: Deutsche Bank forecasts 7G.n,, Le a twit? :Olt+ 201,4 291 G. favorable demographics dynamic for decades to come. This could create the ,A,w GOP 70 6.7 07 potential of redistribution of growth, with the aging economies passing on the CFI 14 II 1.8 mantle of high growth to the relatively young ones. With the right investment CA AN %GDP 33 19 25 policies, the latter economies could become that hub of regional heal bal. %GDP 42 .35 manufacturing and demand. These economies also look set to maintain rsvf, GOP 15 3.0 40 CA 31 44 38 comfortable growth and interest rate differential to keep debt sustainable. All CA AN %GDP 06 2.0 24 three are blessed with large populations and a favorable domestic demand heal bat. %GDP 2.4 1.3 18 dynamic that could generate satisfactory growth. GOP 72 7.5 7.8 CPI 49 5.4 50 CA bat. %GDP .1.6 40 Having a young population is no guarantee of high growth though. Not only do hoc& OM * %GDP 49 41 47 the governments need to put in place the requisite infrastructure and GDP 4.5 4.5 50 employment opportunities for the emerging workforce, they also need to CA 64 41 52 ensure social stability that can often be challenged if population grows too fast. CA bat. %GDP 4.3 Anal OM. %GOP 43 Z3 -22 ,AsArt m GDP 46 4.2 50 Trade stagnation CPI it 2.7 26 CA bal. %GDP 15 3.0 33 Asia's success as a region owes much to its dynamic export sector. Over the Racal 00.140C, 42 4.1 -29 past five decades, starting with Japan. followed by the Tiger economies, and pl...ilspr,ini, GDP 60 6.0 59 then by China, Asian producers have supplied the bulk of manufactured goods CPI 14 3.0 11 consumed globally. A cost-competitive and educated workforce, business- CA bal. %GOP 26 1.1 1.2 friendly policies, and efficient Infrastructure have combined to give global Racal bal. %OUP -1.5 e,,nihxt GOP 2.5 2.5 25 leadership to Asia. But maintaining global market share and manufacturing at 44 1.2 18 leadership is one thing, continuing to grow with trade is turning out to be an CA bet. %GDP 20.2 19.4 17.8 altogether different challenge. Even as US growth has picked up, Europe has NallbM,%GDP 10 3.3 31 bottomed, and consumers worldwide have been benefitting from low energy 1,sea GOP 26 2.0 30 prices (akin to a tax cut), Asia's exporters have had a torrid year. QI 07 10 7I CA Att. %GDP 89 7.3 7.2 Oral bal. %ODA *3 -0.2 0. I So far this year, all key Asian emerging market economies have reported So Cs-R9 GDP 55 6.0 7.0 negative exports growth. Whether they are commodity or electronics exporters, CPI 10 4.5 50 large or small economies, those that rely on China versus those that rely on G2 CA bal. %GDP -1.6 -1.4 -15 Avail bel.1030P 40 4.0 45 demand, the underperformance is across-the-board. Given the sharp drop in IVA*, GDP 10 2.4 17 global commodity prices and the slowdown in China's investment cycle, it is CPI 43 1.1 1.6 easy to understand why commodity exporters like Indonesia and Malaysia will CA bal ,% GOP 156 14.0 127 likely report such poor exports earnings. But the weakness among electronics Await bat %GOP d9 -II producers seems counterintuitive. Surveys of purchasing managers in the US 11-ver GOP 25 2.5 25 at .09 0.9 1.7 and EU show a much better environment presently for new orders than they CA 54I , % GDP 39 2.7 29 have been in the past, say in 2013. Still, Asian exports are substantially weaker. awl bal. % GOP 40 -22 Indeed, the tight historical relationship between Asian exports and lagged ar GOP 55 6.7 7.0 values of US and EU PMI has broken down over the past few years. Indeed, Oa SO 69 CA bet . %GOP -16 41 this breakdown in relationship can be seen not just with aggregate data, but FAA& 0•1 %GOP 47 AO .so with country-by-county analysis. The G2 cycle should have been much more Sant Dan:ft ORM AttildVeh supportive of Asian exports than has been the case. Our conjecture is that the recent bout of poor trade data reflects structural factors that will hold back exports (and export related investment) for years to come. The recovery in the US and EU is atypical, characterized by poor wage growth, low quality jobs, and greater service sector orientation than the past. Also, the aging dynamic in both regions is changing the pattern of consumption (and imports) profoundly. Furthermore, contrary to press reports Page 38 Deutsche Bank AG/London CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0119145 CONFIDENTIAL SDNY_GM_00265329 EFTA01458973