SINGAPORE (Jan 20): While headlines are dominantly negative with protectionist fears and jittery financial markets seizing attention, this year might end as one better than expected following an eventful past decade, says experts from professional services firm Deloitte.

“We are optimistic,” says Dr Ric Simes, economist at Deloitte at a briefing on Friday. “It is important to understand we are optimistic in relation,” he says.

There are several factors supporting Deloitte’s optimism. For one, world economy is “normalising” after a very eventful decade that saw the greatest financial crisis ever, and the subsequent debt crisis in Europe, the end of China’s unbridled growth, and rise of terrorism based on religious extremism.
 
“After a shock, the next shock is one from where you least expected,” says Simes. He cites the experience of many Asian banks and companies that suffered greatly when their US-dollar borrowings crushed them under when their local currencies depreciated.

“After the Asia Financial Crisis, the affected economies and companies de-risked. When the Global Financial Crisis hit, they were able to manage much better,” he points out.

To a certain extent, US Main Street has put the Wall Street-led financial crisis of 2008 behind too. Three key indicators have already recovered, or are doing better than the pre-crisis levels.

These are credit, housing, and labour, says Manu Bhaskaran, director of Centennial Group and Deloitte Alliance Partner.

Also, much has been written about how global trade has slowed. The World Trade Organization, for one, has estimated that global trade for 2016 grew at just 1.7% - the slowest pace since 2009. By contrast, global GDP for the year was up 2.2%.

However, several forward indicators show growth resuming. These include container volumes, global manufacturing new export orders, and global all industry new business index.

The way Deloitte sees it, the slowdown in trade is largely temporary. As economies and businesses readjust and adapt to the series of shocks, trading activity will resume, with much of it driven by Asia.

Simes is aware not everyone will share the optimism. “Some of the trade reforms on the agenda, such as the Asean Economic Community, have not been fully met. But, there are many more continuing conversations, such as RCEP,” he says, referring to the Regional Comprehensive Economic Partnership between Asean and six other economies including China. “The trade liberalisation agenda will still very much set the stage.”

In addition, consumers in Asia, with growing affluence and confidence, have a higher propensity to spend. Better ease of buying things at lower price points is driving the spending as well. This means Asian economies are less dependent on US consumers to drive end demand – they are increasingly the ones. This also means Asia’s economies enjoy an additional “line of defence” if global growth stalls and trade shrinks.

“A new and optimistic generation is taking the lead in driving the direction of their economies: one that is technologically savvy, comfortable with the borderless consumerism of the global middle class, and yet imbued with the consumption-smoothing instincts of its parents and grandparents,” says Eugene Ho, SEA Consumer & Industrial Products Industry Leader, Deloitte Southeast Asia.

Centennial’s Bhaskaran acknowledges that there’s always the possibility of new events that will spook markets. While no one can fully prepare against such externalities, the key attribute is the resilience of economies to bounce back when hit. Thailand, for example, was able to resume growing even though it has suffered from flooding, drought and military coups.

“While it is true that there is much that can go wrong, we also believe that pessimism is misplaced. Despite some headwinds, Asian economies are likely to perform better this year than last. Stresses and setbacks are possible but our view is that Asian economies are today more resilient to these,” he says.