A burst of inflation, driven by soaring oil and commodity prices, threatened to derail Asia’s growth in 2008. The 2009 global recession forced prices for commodities, finished goods and services down and left lots of excess capacity that should help keep prices down for several years. Yet as 2010 starts, signs have emerged that inflation could become a problem by mid-year due to a surge in demand that has created shortages for some materials and some types of labour. 

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The great majority of our clients have had a good 2011 in Asia with only a few hints of a slowdown ahead. Yet, a sharp slowdown is imminent, mostly due to a slump in trade triggered by problems in Europe that will likely cascade through to demand from the US and China for Asia’s exports. The downturn will be sharper for manufactured goods and hard commodities such as coal and iron ore than for soft commodities, as underlying demand for food in Asia should remain strong.

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The share of emerging markets in the global economy started to rise sharply from 2009 and this trend will continue through to 2015 and beyond. Emerging markets, particularly China, have relatively low public debt and have sufficiently improved their policy settings to allow higher trend growth. China has become as central to the global outlook as the US or EU as it will supply more growth in demand than either the US or EU despite being a smaller market.

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