Zeti Akhtar Aziz: Why Asia? Asia's prospects and how emerging markets
shall shape the region's future
Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the
Management Association of the Philippines (MAP) Luncheon Seminar: "Why Asia? Asia's
prospects and how emerging markets shall shape the region's future", Manila, 2 May 2012.
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It is my great pleasure to be here in Manila to give this luncheon address. Let me thank the
Management Association of the Philippines for the invitation to speak here today on Asia's
future prospects; why Asia and how will emerging Asia shape the region.
Opportunities in Asia are now boundless. Key in generating these opportunities are the
economic flexibility of the region, the diverse nature of the region that has generated the
potential to leverage on regional complementarities, and the demographic advantages of the
region. These opportunities are also being enhanced by the significant payoffs gained from a
decade of reforms, and the intensification of regional economic and financial integration that
is now taking place and resulting in a more connected and cohesive region. Despite being at
different stages of development and operating in different economic systems, the benefits
are also increasingly being more widely shared. Finally, the region has also benefited
immensely from the resilience built, and more recently, from having the policy flexibility to
minimise to the effects of the recent global financial crisis.
Let me elaborate on these prevailing trends that are shaping emerging Asia's future. Asia's
growth prospect is very much underpinned by the transformative momentum that has, for a
number of decades, brought emerging Asia to its current growth trajectory. The economic
flexibility of emerging Asia has enabled most of the economies in the region to adjust to the
changing conditions and to shift resources to new areas of comparative advantage.
Emerging Asia has demonstrated that it has not been weighed down by structural rigidities
and impediments. Capital and labour mobility has been strengthened by the economic and
financial reforms that have resulted in the shift towards greater market orientation and
liberalisation. Changing economic structures and transformation within specific sectors,
including the participation in cross border production chains, have been gaining significance.
Emerging Asia has also been able to leverage on technology to push beyond prevailing
frontiers. Firms in emerging Asia are also increasingly innovating and allocating resources to
research and development, and becoming leading players in their various respective
industries.
An equally important economic shift that is taking place in Asia is the rebalancing of the
economies from being export-dependent to domestic demand becoming an important source
of growth. Rising incomes, stable labour market conditions and resilient financial systems
have supported private consumption and investment activity. Asia is, therefore, transitioning
from being just global producers to being global consumers. Asia also has the policy space
to support and strengthen domestic demand. Asia is becoming a huge cumulative market in
the global economy.
Reinforcing the economic flexibility of Asia is the diversity of the region. Asia is one of the
most diverse regions in the world in terms of size, stage of development, resources,
economic structure, degree of openness and market orientation. In harnessing each other's
comparative advantage and leveraging on the regional complementarities, for Asia as a
region, the whole has become significantly greater than the sum of its individual economies.
Over the recent decade, this has generated a significant expansion in intra-regional trade,
investment and financial flows. This trend is expected to intensify significantly going forward.
The diversity of emerging Asia also presents immense opportunities in terms of the growing
markets across the entire spectrum of products and services.
The third key trend that is shaping the future of the region is its demographic advantages.
Asia is by far the most populous region of the world, accounting for 60 per cent of the world's
population. A vast, growing and young middle class population, with increasing affluence, will
be a key defining characteristic, and an underlying growth driver of Asia. By 2030, it is
projected that the current 500 million Asian middle class will grow by more than six-fold, to be
more than 3 billion. This will have significant implications on global consumption and trade
patterns, and on urbanisation and infrastructure development. The scale is immense. The
Asian Development Bank has also projected that over this decade, Asia will require an
investment of over 8 trillion US dollars in infrastructure development. It has been projected
that every year, 44 million Asians are expected be added to the urban population.
The opportunities generated by these trends are being further enhanced by greater regional
economic and financial integration. The intensification in regional integration will not only
contribute towards accelerating Asia's growth momentum, but also further strengthen the
resilience and stability of the region. The increased intra-regional trade and investment
linkages within Asia over this recent decade have strengthened Asia's economic resilience to
external shocks. Indeed, the changing patterns of trade have allowed Asia to better withstand
and emerge with an earlier recovery from this recent global financial crisis. It has also
enabled Asia to be less susceptible to the ongoing deleveraging in the advanced economies.
The more recent efforts have focused on strengthening regional financial integration - not
only to sustain regional financial stability, but also to promote more efficient intermediation of
funds in Asia to support the region's growth prospects. It will allow for the effective
rechannelling of Asia's sizeable surplus funds towards productive investments in the region.
Going forward, the intensification of regional integration will mutually reinforce the
strengthening of domestic demand in Asia, thereby enhancing the region's economic growth
prospects.
While regional economic and financial integration will intensify going forward, driven by the
opportunities it presents and the conscious policies for a more cohesive region, Asia will
continue to be integrated with the global economy and the international financial system. The
external environment for Asia has, however, changed significantly. The protracted weakness
in global demand can be expected to persist over the medium term, given the structural
nature of the problems confronting several of the major economies. Any setback in the
recovery process, or any severe economic contraction in any of these economies, would
affect Asia through the trade channel.
In addition, the Asian region is also affected by the significant and continuous global policy
spillovers. This includes the effects of the implementation by several of the major economies,
the fiscal austerity measures, the unprecedented quantitative easing, the unintended
consequences of the regulatory reform, the effects from deleveraging arising from the efforts
by both the public and financial sectors to reduce their levels of indebtedness, and the effects
of resolution of stressed financial institutions. These global policy spillovers are affecting
international trade and financial flows.
How has Asia managed these fundamentals forces affecting our region? It is the wide
ranging actions that have been taken by Asia during the decades before that has well
positioned Asia to absorb and manage the effects of these global developments. The
strengthening of domestic demand, building resilient financial systems, and facilitating
regional financial and economic integration that has been reinforced by growth supporting
policies, have contributed to particularly mitigate the effects of slower trade on the regional
economies.
Similarly, the development of the domestic financial system particularly the domestic financial
markets, the strengthening of the surveillance system and the legal, regulatory and
supervisory frameworks, have increased the capacity and capability to manage
consequences on access to cross border financing, and from quantitative easing,
deleveraging activities, and financial sector resolution in the major economies. In addition,
this has been reinforced by the building of buffers during the good times. Financial
intermediaries remain well capitalised with strong buffers, while the international reserves
remain sufficient to deal with surges and reversals in capital flows.
A more recent development in this decade is greater regional collaboration and cooperation.
Asia is well ahead in the areas of surveillance arrangements, financial safety nets, and crisis
management. These frameworks and arrangements have been built up during the good
times. Information sharing and the establishment of regional arrangements and platforms,
including the building of regional financial infrastructures and markets, are not only to
facilitate the efficient intermediation of financial resources, but also to safeguard financial
stability in the region. This trend paves the way for coordinated policy actions to manage and
mitigate the risks and vulnerabilities to the region.
Conclusion
The global economic and financial environment remains highly dynamic and uncertain. While
emerging Asia is unmistakably contributing to reshaping the configuration of the global
economy and the international financial system, the fundamental underlying factors driving
this global transformation needs to be continually reinforced. It will require our own
continuous economic and financial transformation. Most important will be to ensure the
continued economic flexibility of the region to adjust to the rapidly changing global and
regional conditions, the strengthening of the connectivity among the emerging economies in
general and within the Asian region, and to boost further the resilience of the region to
withstand any destabilising developments.
The ASEAN economies have a distinct advantage. In terms of their economic flexibility, their
size and stage of development provides the prospects of having greater agility to adjust to
the rapidly changing conditions. In terms of the connectivity, the ASEAN region is a highly
cohesive region. Historically, it goes a long way back to the 1950s. Cooperation and
collaboration are evident in most areas of economic activity and in the financial sector, in
both the public and private sectors. Policy-makers participate in several regional agreements
and arrangements. The large economies have the opportunity to leverage on the potential
synergies from a greater interface with the ASEAN grouping.
To realise the Asian potential, continuing the transformative momentum and enhancing the
cohesiveness of the region would not be complete without ensuring that the benefits of
development is widely shared. Experience has shown, even in the advanced economies, that
when inequality is high and significant, instability follows. Greater inclusiveness within
economies and across the region is important to ensure the sustainability of our growth and
development. An important part of this transformative momentum and greater inclusion will
be the transformation involving education, health care and the social security system.
Addressing these challenges will ensure Asia has a high potential to remain on its growth
and development trajectory.
Thank you.