Global and Asia Pacific economic outlook 

I'm Richard Gibbs the Global Head of Economics for Macquarie Group. Certainly the bigger macro trends that we are seeing in the global economy in the Asia Pacific region revolve around the flows of capital of course and investment, and what the sovereign debt crisis in the Euro area is doing in relation to the direction of those flows. Also, exchange rates of course as we see the global economy realigning and of course there's still the vexed issue of China's exchange rate and its value that's coming through there. And of course how policymakers respond to that, how effectively they actually can implement particularly in countries that are heavily indebted fiscal austerity measures who maintain social cohesion. So there are a lot of dynamics I would say socioeconomic dynamics that are now part of the big picture.

Really the big concern, we picked this up in China a few weeks ago, is really what happens in terms of 1) the U.S. recovery, so the recovery of the U.S. economy whether or not that can really gain traction, and secondly the Euro debt impasse and just how much of a knock on effect that will have. This is very different to the aftermath of the global financial crisis in 2008 where Asia Pacific basically had a view that it could almost go it alone, because it was a liquidity crisis we were dealing with, very strong income growth in the region and as they did show growth leadership in the aftermath of that. This time around when we're dealing with issues of solvency or insolvency through the sovereign debt impasse that we're seeing in the Euro area, much more concern about potential contagion effects into the Asia Pacific region.

Look, I think Singapore continues to display leadership, continues to present to the world a very attractive destination for investment, both portfolio and fixed investment and that's important. Obviously continues to display a great deal of liberalism as well in terms of capital flows and leadership in relation to the structure of the Asia Pacific financial system and also is trying to lead the way in relation to integration of particularly stock exchanges for example in the Asia Pacific. China I think are now beginning to recognize the need to display greater leadership of course, but they do carry that burden or legacy if you like of the issue of their exchange rate, and of course the Americans have been really looking at that issue in the last few weeks in relation to the need for further reform. Elsewhere in the region, Vietnam is also doing very well in relation to presenting a very internationalized approach to the world, and we're seeing of course South Korea doing very well in relation to, I suppose, the resurgence of its stable structure and the success of those corporations on the global stage, but particularly pushing into things like sustainable energy and more energy efficient production and the like.

Well the interesting practice that's emerging in South Korea is one that we thought wouldn't be successful and that is where you have what we thought were unyielding conglomerates who are actually achieving very good financial success in relation to very diverse markets, and are doing that I think because they are adapting very rapidly to the changing dynamics in the global economy in the realignment that's going on in that economy, and particularly led by the Asia Pacific region with the growth in the domestic demand basis. Well the risk factors have really come to the fore, and that's really because the risk free asset which is you know widely held to be of course a long-term government debt has been under enormous pressure, particularly in the Euro area, but also in the United States and to some extent Japan. Now when that benchmark becomes undermined in terms of its value, it makes it very difficult to price spreads in relation to other risk in relation to the allocation of capital.

So we're seeing that reverberating through. Other things being equally, is making and will make the cost of capital more expensive and it will also constrain capital flows to some extent. Not so much of an issue for those economies in the Asia Pacific that have large foreign reserves, particularly China, but certainly more of an issue for an economy like India that is dependent on those foreign capital inflows because it's running a current account deficit. So the extent to which it makes those inflows and outflows more volatile, that does create concerns and it creates obviously an issue in relation to macro policy management of how well you can manage a stable growth and activity base in the economy. Malaysia specific in terms of prospects for 2012 some may say its successful muddling through. I think it's really particularly for China and India a success for three-point soft-landing if you like.

We're looking at China growing by around 8 1/2% in 2012, India close to 7 1/2%, and really for all intents and purposes that's a return to long run average rates of growth, or potential rates of growth, which is a perfect as I say three-point soft landing which really policymakers were aiming for when they were trying to quell the inflation pressures in their economies through the use of interest rates and higher interest rates at that. It looks as if they've achieved that without really significantly constraining economic output and sending the economies into hard landing scenarios. Now that is a very – will be a very creditable outcome, given what we're seeing in relation to the backdrop elsewhere in the global economy, particularly in the Euro area and the Russians are all likely to extend into 2012. So, really for the Asian Pacific, it's a case of middling performance which in a relative sense is going to be very attractive and creditable performance in an economic sense.