Robert Ward, Francisco Quintana and KCIC CFO Faisal Nawaz seen at the diwaniya.
‘Risks’ to economic recovery seen easing Emerging Asia growth key

KUWAIT CITY, Feb 4: Though the global economy is better off today than last year, economists from the Economist Intelligence Unit (EIU) and from Kuwait China Investment Co (KCIC) warned that the recovery might continue to fall below expectations if political standoffs continue to take place at the expense of implementing sound economic policy. KCIC’s Senior Economist, Francisco Quintana opened the session with a clear message on the fragility of the economic recovery route that lies ahead. “Although there is a certain level of optimism amongst us, we don’t think 2013 will be the year the global economy will go back to the pre-crisis growth level. Growth shouldn’t be taken for granted, because present risks could turn it into a recession, especially with ongoing political risks.”

EIU’s Global Forecasting Director, Robert Ward echoed Quintana’s sentiments on the economic climate in 2013 during the diwaniya and anticipated the decreased demand for oil to worldwide which leads to lower oil prices and political unrest in the Middle East to dampen the momentum that is expected in 2013. However, Ward also pointed out the silver lining that lies in the current economic climate. “If this is a ten year crisis, then the good news is 2013 is the midpoint, and we have only five more years to go.”

“The US is also showing signs of recovery which gives us hope of a faster road to recovery but it is not capable to be the backbone to support economic changes across the globe in 2013. The answer lies in the Emerging Asia which represents 50% of the global economy that will determine what happens in Asian economies. These Emerging Economies will be the best performers of 2013.”

Quintana agrees with Ward’s outlook on the performance capabilities of the Emerging Asia: “Although the steady decline in global exports and imports across the globe is likely to continue through 2013, the emerging Asian countries will prove resilient to these trends and we are more optimistic of growth in Asia and these economies being the best performers in 2013,” Quintana said.

Global growth outlook for 2013:
KCIC presented GDP growth forecasts for key countries in 2013, showing strong expected growth in Emerging Asia countries such as China, India, Indonesia, Malaysia, Vietnam and the Philippines, a mild growth in the Gulf Cooperation Countries, versus low growth in the United States (US) and Japan, and a contraction in the European Union (EU).

The Economist Intelligence Unit also identifies Asia as the main source of growth for the world’s economy. EIU expects China to be the largest economy in the world by 2020. However, the difference in the size of the population should not be ignored. China is also facing the challenge of falling in the middle income trap.
Quintana said, “We see a better outlook for Asia even though global exports and imports are in decline across the globe. You cannot force other countries to buy your goods, but you can force your government to invest. And China is doing that. Government’s investment grew more than 20% in 2012, and the trend will continue in 2013. This is good news for other Asian countries, which are heavily exposed to China through exports.”
KCIC’s outlook is less optimistic for the US. Debt reduction in households is being slow and unemployment still high. The real estate market is stabilizing but it will not be sufficient to lift the American and world’s economy out of low growth.
EIU’s Ward was more upbeat, “The US seems to have some positive signals for growth this year. The housing market is recovering now, plus abundant shale oil will help the manufacturing sector. These two factors will be working to the benefit of the US.”

In the EU unemployment is even higher than in the US, and weak consumer confidence will hamper consumption. Germany enters 2013 with exports to the rest of the EU contracting for the first time since 2004. Germany’s exports account for 40% of its GDP and 57% of those exports go to the EU. KCIC expects Germany to contract in 2013. EIU expects five of the Euro 15 in recession in 2013, with Greece, Portugal and Spain needing further bailouts. The UK is, on the other side, stabilizing with labor costs coming down rapidly.
The GCC is expected to decelerate from 4.6% growth in 2012 to 3.6% this year. The weak global economy is reducing demand for oil, but KCIC expects governments to keep spending massively to avoid Arab Spring style unrest in their countries, and that will prevent a serious slowdown. Oil prices will remain relatively high, mostly because the OPEC will keep a grip on supplies during the year. Production levels from Iraq, Lybia and Nigeria will probably go up, but exports will be hindered by poor infrastructure and weak logistics.

In the Middle East and North Africa region Ward expected diverging performance as these countries are going through different circumstances. In Syria, for instance, he expects a hybrid regime after Bashar Al Assad leaves. Politics will be the main risk in 2013.
Commenting on the current risk situation, Quintana said: “It is true that we avoided the meltdown last year. In 2013 the economy, supported by policy, will be flat. But there are many political actions that could derail policy and send the world back to recession. In 2013 investors should make their decision watching the political calendar closely. Politics, not economics, will drive markets this year.”
Quintana also highlighted that due to weak demand and the ongoing currency war, commodities and currencies will be difficult assets to play. However, equities keep responding well to liquidity, and there will be plenty of that this year.

Ward concluded the session with his prediction on the expected performance winners and losers of 2013. Some of the winners were Macao, Iraq, China and some African countries will do well with strong demographics acting in their favour. The world’s losers in 2013 will be Syria, Iran, and the European periphery economies, like Greece and Portugal.
KCIC is an investment company founded by an Emiree Decree with a capital of KD 80 million and a mandate to invest in domestic demand-driven sectors in Asia, namely energy, real estate, healthcare, infrastructure, and financial services. The publicly-listed company employs a team of Asia specialists and currently manages assets in excess of $260 million. Key shareholders include the Kuwait Investment Authority (Kuwait’s Sovereign Wealth Fund), National Investment Company (one of the leading investment banks in the Middle East), and Al Ghanim Industries (one of the largest conglomerates in the Middle East).

The Economist Intelligence Unit (EIU) is the world’s leading resource for economic and business research, forecasting and analysis. It provides accurate and impartial intelligence for companies, government agencies, financial institutions and academic organisations around the globe, inspiring business leaders to act with confidence since 1946. EIU products include its flagship Country Reports service, providing political and economic analysis for 195 countries, and a portfolio of subscription-based data and forecasting services.

The company also undertakes bespoke research and analysis projects on individual markets and business sectors. Quintana worked as an Economist at the World Bank in Thailand and Lao PDR, as Senior Advisor to the Deputy Mayor for Economic Affairs and Employment at the City of Madrid and as Trade and Investment Advisor at the Economic and Commercial Office of the Embassy of Spain in Thailand. He holds a BA in Economics from the University of Malaga, a MSc in Development Economics from SOAS and a MPA from IE Business School.

Previously, Robert was the Economist Intelligence Unit’s chief automotive analyst and a senior member of the Economist Intelligence Unit’s Asia team with special responsibility for Japan and the Koreas. With almost 20 years of experience working on or in the region, seven of which were spent living in Japan, Robert remains one of the Economist Intelligence Unit’s leading Asia specialists and is well placed to make sense of the complex dynamics in the region’s economic, political and business spheres. He holds a BA and an MA from Cambridge University and is a fluent speaker of Japanese.

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