Southeast Asia's economic prospects will be framed by four major trends: lower global growth, demography, urbanization, and, most crucial of the four, the coming age of scarcities. Together they weave a new tapestry for Southeast Asia's future.
Over recent decades the world has enjoyed exceptionally high economic growth rates. There have been examples of high growth (like Britain at the beginning of industrialization, Germany around 1900, and the United States at the same time), but that was never global growth. Now millions all over the globe have been lifted out of poverty and gross domestic product (GDP) per capita has reached approximately US$4,000 for China — the most populous country in the world.
With this background it seems surprising, even astonishing, that lower growth looms ahead. The reason is that this high growth was fuelled by borrowing, which basically means that the present encroached into future consumption — this was especially seen in the United States with saving rates at around zero for the household sector over several years. In 2005 United States households were actually dissaving compared to a historically high savings rate of 14.6 per cent in 1975. At the end of 2011 the household savings rate was around 4 per cent. [End Page 73] (The much maligned eurozone managed a household savings rate of 13.9 per cent for the second quarter of 2011.)
The figures tell a disquieting story. After World War I global sovereign debt rose to 70 per cent as the major countries borrowed to finance the war. It fell during the interwar period when debt was at least partially paid back. After World War II it rose again and this time approached 100 per cent of GDP. Again it was paid back and in 1970 it was only 30 per cent of global GDP. Waters seemed calm, but over the recent decades when high growth opened opportunities for savings, countries should have saved to prepare for rainy days, but they actually did the opposite and borrowed to increase spending. It was like an automobile racing downhill despite warning signals, with the driver putting his foot on the throttle just for the fun of it.
The result was what could be expected — disastrous. Global sovereign debt is now 100 per cent of global GDP. More worrying is that the debt is concentrated among the rich countries that should have saved and lent to the developing and emerging economies to sponsor their economic development. Now it is the other way around; the poorer countries lend to the richer countries — a task the global financial system is not geared to handle.
Adding household, corporate, and financial sector debt, the astonishing figure of 300 per cent of GDP among the OECD (Organisation for Economic Co-operation and Development) countries emerges. The biggest economy, the United States, is leading the pack with a combined total of debt in all sectors of approximately 400 per cent of GDP.
Debt has to be repaid. That puts a lid on economic growth as consumption must be reduced to provide the savings to repay the debt. There is no other way. The current debate is not about the repayment, even if politicians try to skirt the issue, but about how to do it, especially how to exercise burden sharing among countries and various groups inside the debt-laden countries.
Southeast Asia is reasonably well positioned, with most countries running what look like sustainable budget deficits provided that economic growth can be maintained. Figures from the Asian Development Bank (ADB) show that the fiscal balance of central governments as a percentage of GDP in 2010 was between -0.1 per cent and -8 per cent for the ten countries compared to somewhat worse figures for South Asia, comparable figures for Central Asia, and East Asia showing better results albeit not displaying surpluses.1 Public debt is manageable with figures not much above 50 per cent for the major economies. [End Page 74]
The global population is seven billion people and will continue to rise, reaching at least nine billion around 2050 — barring unforeseen calamities like a major war, man-made...