2017 will be better than you think, with Asia leading the way

Mumbai, 16 January, 2017: 2017 will be better than you think, according to Deloitte that today released the first edition of their Voice of Asia series. Despite protectionist rhetoric from the US and gloomy forecasts from the IMF, three factors suggest global growth is about to surprise on the upside, with Asia leading the way.

First, the global economy is finally normalising after a decade of shocks, and a natural healing process is underpinning a more resilient recovery. Second, world trade is already lifting and the benefits of this are spilling into Asia. And third, Asia’s mega-economies of India and China, are increasingly being powered by consumer booms, acting as a stabilising force in their economies and for the region.

“We see evidence that global growth will accelerate, not decelerate as forecasted by some. Leading indicators show this and the underlying drivers of the global economy, such as labour and credit markets, are already turning more positive”, said Anis Chakravarty, Lead Economist at Deloitte India. “India continues to do well by maintaining growth above 7 percent in the face of global headwinds. We believe the slowdown due to demonetisation is likely to be temporary and that consumption growth will be back on track by mid-2017.”

Global economy stabilising

Following a series of shocks that began with the global financial crisis and then, in quick succession, the Eurozone debt crisis and the geopolitical shocks in the Middle East, Europe and Asia, the global economy is finally normalising. Deloitte’s report predicts that global growth could in fact accelerate in 2017, with leading indicators already pointing to a lift in world trade. This will begin a virtuous circle in which global growth triggers an upsurge in trade which, in turn, fuels stronger growth. Asia’s major markets of India and China are also powering ahead and growth in most other countries in the region are strengthening, aided by a buoyant US economy. 

Trade picking up

World trade volumes were damaged by successive crises and shocks in recent years, but leading indicators suggest volumes are ready to lift. Of course, there will still be risks in 2017, the largest of which may be the anticipated depreciation of the Chinese Yuan, which could affect the region’s nascent recovery. The continuing devaluation of the Chinese Yuan is necessary, though how the Chinese government manages it will be key. If it’s too aggressive, other Asian currencies may also fall–which could tempt the incoming US President to follow through on his protectionist rhetoric and hit trade.

India’s services exports are likely to benefit from the recovery in US growth momentum as the United States continues to be the biggest market for Indian services. India’s outsourcing industry remains dominant in the region.

China is an obvious beneficiary from increased demand in the G3 (US, Europe and Japan), but it is facing more protectionist barriers and some Trump-related question marks. India’s manufacturers have considerable potential to sell into newer markets and are already targeting African and Latin American countries.

Anis Chakravarty, Lead Economist at Deloitte India, said “We see services, which has been a major engine of growth for India, strengthening despite the US election-related discussion around this topic. India’s manufacturers remain less geared to a pickup in G3 demand but nonetheless will be positively affected by a recovery in key export markets.”

Should there be a major contraction in Chinese trade, the main losers will be Taiwan, Korea, Japan, and the Philippines. These structural trends in intra-Asian trade are a potential vulnerability: They present a growing risk to Asian prosperity should further global (or Chinese) shocks occur.

Consumers booming

Asia’s mega-economies, India and China, are increasingly being powered by consumer booms, providing Asia with an additional line of defence if global growth isn't as good as expected and trade tensions boil over. 

Anis Chakravarty, Lead Economist at Deloitte India commented, “The Indian economy, traditionally been powered by consumers, is set for another structural boost. While the complete effects of demonetization are still in play, from a structural perspective, consumption is expected to continue its driving role in 2017 because of three fundamental factors: Rising wages (including for the public sector), a boost to rural incomes and, more importantly, a structural push from taxation reform.”

The new generation of consumer in Asia will be a stabilising force in their economies, meaning they are likely to play an anchor role for 2017, regardless of other developments.

For more analysis and details on the Voice of Asia, please visit Deloitte University Press.

Notes to the editor for reference purposes only:

This press release has been issued by Deloitte Touche Tohmatsu India LLP.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms.

Deloitte India herein refers to Deloitte Touche Tohmatsu India LLP.

Deloitte Touche Tohmatsu India Private Limited (U74140MH199 5PTC093339) a private company limited by shares was converted into Deloitte Touche Tohmatsu India LLP, a limited liability partnership (LLP Identification No. AAE-8458) with effect from October 1, 2015.

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