Source :

Singapore Supply Chain and Logistics Asia

Economic and Market Analysis
27 August 2008
Supply Chain & Logistics Asia

Global Outlook
US Economic woes will hurt but not derail Asia Has Asia decoupled from the US?

US GDP growth will likely be negative (between 0% and -1%) in Q1 and Q208

Asian stock markets have plunged on bad economic news coming out of the US since Jan 08

write-offs from financial institutions & aggressive Fed rate cutting, which has tended to feed market panic

The USD has weakened against Asian currencies significantly since Jan 08

Fed rate cuts + commodity price rises = inflationary spiral

Effect on US consumer sector yet to come

Multiplier effects of financial crisis (panic due to “mark to market”rule)

Asian exports will be hit to some degree

Nightmare scenario –stagflation (recession + high inflation)

BUT...emerging markets (esp. China, India & Russia) will pick up some of the slack in global growth

Demand Outlook

Asia is so far holding steady, though the worst of the slowdown is yet to come

Asia has accounted for more than half of global GDP growth since 2001

China and India are on track for 8-10% GDP growth in 2008

The IMF expects world growth to slow down but still remain solid at 4.8%, due to the major emerging markets taking over as leading contributors to global growth

Other drivers of growth in Asia –consumer spending,exports to non-US destinations, fixed asset investment, FDI –are mostly on track

Singapore, and to a lesser extent Taiwan and Korea, will be most affected by the US slow-down

Hong Kong is partly cushioned by the currency peg

Fundamentals of Demand Growth
Asia-Pacific growth looks sustainable

Asia-Pacific growth in the past five years has generally not hit the peaks seen in the pre-1997 period, with the notable exception of India

Consumer Demand
Asia-Pacific demand is largely led by domestic consumption…

Consumption is a major driver of growth, as seen in booming markets for homes, cars and mobile phones

In China, retail sales grew >17% in the past few months

In India, it is likely to be ~8%

Exports can swing the growth outlook in only some countries

No major clouds on the horizon

Property bubbles are generally localized to cities like Mumbai, Bangalore and to some extent Shanghai

Asia-Pacific Outlook
…and Retail sales in AP will show continued growth Asia Pacific retail sales

Retail sales in most parts of the Asia-Pacific will see strong growth in 1Q08….

….with China leading the pack with a retail sales growth of 12.8%in 1H08

Only Taiwan, Japan and New Zealand are expected to see slower growth in 2008

Other Demand Drivers
Fixed asset investment –an under-appreciated growth driver

Construction has become a significant growth driver, resulting in tight markets for building materials

China is seeing double digit FAI growth, while more infrastructure investment will be pumped into the West (roads, pipelines) and South (Kunming-Singapore highway)

India’s government will spend US$101 bnon infrastructure in 2008 -2012, not including 300 retail mall projects due to come on-stream in 2008

Malaysia is investing in the IskandarDevelopment Region (~US$20b) and the Northern Corridor Economic Region

Singapore is seeing a construction boom, led by the Integrated Resorts and a rash of new properties

Hong Kong announced a clutch of major infrastructure projects in Oct 07

Australia’s private and public construction is growing at 14%

FDI from US will be hit

FDI is significant contributor to growth in Singapore, China and some of the ASEAN countries but increasingly India

India has drawn US$15 bnin FDI and US$ 12 bnin portfolio investments in 1H 2007

US FDI outflows to Asia may be hit by the softer economy and weaker dollar –affecting China to some extent and Singapore to a greater extent

Intra-Asian FDI may pick up some of the slack - China is now one of the leading investors in Hong Kong, contributing US$163.1 bnin cumulative FDI (31% of total stock) at end-2005

More Asian companies are buying stakes in US firms, a trend that will continue through 2008

Demand Driver
Exports will still grow albeit more slowly

Exports have sustained strong growth in 2007

Exports to China and the EU have been rising

Assembly activities continue to move from ASEAN, Taiwan and Korea to China

There will be weaker US demand for exports due to the softening economy and a weaker US dollar

Much will hinge on the EU, which is slowing (2.1% latest y-o-ygrowth)

Trade liberalization will be a big fillip to exports

Vietnam’s entry into WTO Jan 07

China-ASEAN FTA in a few years time


A possible Taiwan-Singapore FTA and direct fights between Taiwan and China

The region’s Number One concern

In 2008, inflation could hurt Asian growth (the big exception is Japan)

China’s CPI rose 8.7% for Feb 2008, versus 2.7% for Feb 2007

Energy and Commodities
Commodities will drive inflation but benefit some verticals

The US dollar will weaken a little before it gets stronger towards late 2008

Public Policy Issues
2008: fiscal stimulus and cautious monetary policy

2008 –A Political Year
This adds to the uncertainty that will cloud investment planning

Intra-state instability probably a greater concern than inter-state conflict or terrorism Political hot spots in Asia in 2008:

Air/Ocean Freight
Growth will continue but at a slower rate compared to 2007

Government Initiatives
ASEAN integrates further into single market

New routes to facilitate logistics in Asia

US$430 million project will put in place all enabling components of the “logistics hub” as part of the Luzon Urban Beltway super regions’ blueprint of President Gloria Macapagal Arroyo

Emerging Hubs in the Asia Asia-Pacific
AP countries are committed to investing heavily in logistics

Country Outlooks
While China dominates, India & Vietnam are fast rising & ASEAN is healthy

China and India are seen as the production hubs of the future

In Short: The Big Issues

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