John Connolly’s View From Asia

Our partner, John Connolly, was in from Australia last week. As we began discussing the global economy, he gave us his view from Asia. I thought you might find his comments (below) interesting:

Europe in turmoil, US heading for a deeper recession, gold falling faster than Silvio Berluscomi’s popularity…is this time to close up shop and head for the nuclear fallout shelter you built in the sixties?

Well while Greece and a few close Euro friends are looking at minus 5% GDP next year, there are some still some good performers among those that used to be masters of the old world. The old Russian states (and Russia) will see GDP grow around 6% with outliers like Mongolia (don’t go there in winter) growing at 11%. Denmark, Germany, Netherlands, Poland, Sweden, Switzerland, and Turkey are operating at full capacity with near zilch unemployment. Down south Brazil, Argentina and other commodity rich countries should help the continent average around 4 to 5% growth. With help from Chinese investment part of Africa are doing better than lots of developed countries.

But the real story is Asia particularly China and India. The real reason that globally we are suffering acute economic anxiety is that people are concerned the Chinese economy is faltering.

That show’s how little they know about China!

Yes next year China will slow from 10 plus growth to 9 plus growth. If that is faltering let’s have some more. India will slow from 10 plus to 8%. And the rest of Asia ex Japan will probably average around 5%.

What’s going on is definitely not an Asian boom but a structural change in economic power from the Atlantic to the Pacific. The developed world has created a middle class of one billion people…in the developing world there are around three billion ready to get there.

In the 15 years from 1990 to 2005, in China over 250 million people moved from the country to cities. Between 1990 and 2005, 100 million people in India moved to the cities. Over the next 15 years nearly 600 million more Indians and Chinese will move into cities.

So urbanization and industrialization are driving demand for hard (energy, minerals)and soft commodities (food, water, fibre) as cities, roads, bridges and rail are constructed.. Demand growth is strongest as countries move from $2,000 per capita to $10,000 per capita. China is just at the tipping point. While there will be blips in the Chinese economy, leadership there has shown an extraordinary ability to manage thirty years of economic expansion and the country’s place in the global economy. Already intra Asian trade outstrips trade outside Asia.

Now what this says is that if you are a US, UK or European business and you’re not in Asia, South America, tech, resources or linked to them than you are going to be doing it tough.

There will only three kinds of companies. Those that are fully involved in Asia like Caterpilllar, some of the major US banks, Coke, Pepsi, McDonalds and Apple, some that have some exposure but have much of their business in slow or no growth economies and those that the world will make irrelevant. It’s your choice.

Posted by Bob Zito at 9/29/2011 12:45PM

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