<p>Economic forecasting is built on complex models with numerous variables that serve as inputs to the process. Each of these have a bearing on the final outcome. Consequently, forecasting is at best a mugs game, where we get it right about half the time. The IMF continues to be the most credible source for economic data having developed a high level of expertise, improvised over the decades. Whilst, its projections can hardly be cast in stone, the IMF provides a basis on which think-tanks like us build their analytical models. In his presentation at a joint session of the CEO and CFO Forums last week, Richard Martin, Managing Director of our sister company, IMA Asia, presented an assessment for the global outlook leading up to 2028.</p><p>Our analysis produced some interesting findings. Firstly, India will be the fastest growing large economy over the coming 5 years, averaging an annual growth rate of 6.4%. The Asean 6 will grow slightly slower at 4.9% and China at 4%. North Asia, Latin America and Eastern Europe will chug along at 2.4%, whilst advanced economies in the Eurozone and America will achieve rates of growth between 1.4% to 1.8%. The role of managers is to identify market opportunities that would provide future returns. Consequently, the Asian region which, as explained in part 1 of this article, had flaunted the greatest transformation over the past 5 decades, will yet remain dominant in the pecking order. China will add USD 1.7 trillion annually to market growth; the United States USD 1.2 trillion and the Euro area just about USD 500 billion. Interestingly, our model suggests that India will, over the coming 5 years, on an average provide new market opportunities to the tune of USD 450 billion per annum. If the sums are collated for a 5-year period, the additions to global markets by 2028 present an interesting landscape. China remains the largest growth story, adding USD 8.6 trillion, compared with USD 5.5 trillion in America. India and the Euro area will add USD 2.1 to 2.5 trillion each, and other markets such as the Asean 6 and Latin America will lag behind.</p><p> Global business corporations have historically based their Asia strategy on the premise of a hub-and-spoke model where a preferred manufacturing location, frequently China, served an entire region and eventually the whole world. Multinationals could divert brick-and-mortar investments into places that were considered productive and made logical sense. Now, with rising nationalism and the imposition of trade barriers, companies have been forced to revisit this strategy. Large markets like India, will out of compulsion, through trade restrictions, force companies to produce locally.</p><p>Ultimately, it all boils down to the perception of risk. Businesses have to examine whether the greater risk lies in an investment going sour or in the potential loss of a market opportunity, because managers felt unwilling to take a punt on where future growth might stem from. At our CFO forum session, hosted recently, on the subject of risk, the Finance Director of a large Japanese company summed it up beautifully when he explained that from the perspective of his organisation, the greatest risk going forward would be in missing out on the India story. Having said that, local production is not always easy, because existing supply chains would need to be reshuffled and that comes with headaches and capital. However, what distinguishes winners from losers is the ability to take risks and time investments so that capacities are created ahead of demand. Going forward, the Asian region will continue to be the key driver to global growth and India constitutes a sizeable chunk.</p>
<p>Economic forecasting is built on complex models with numerous variables that serve as inputs to the process. Each of these have a bearing on the final outcome. Consequently, forecasting is at best a mugs game, where we get it right about half the time. The IMF continues to be the most credible source for economic data having developed a high level of expertise, improvised over the decades. Whilst, its projections can hardly be cast in stone, the IMF provides a basis on which think-tanks like us build their analytical models. In his presentation at a joint session of the CEO and CFO Forums last week, Richard Martin, Managing Director of our sister company, IMA Asia, presented an assessment for the global outlook leading up to 2028.</p><p>Our analysis produced some interesting findings. Firstly, India will be the fastest growing large economy over the coming 5 years, averaging an annual growth rate of 6.4%. The Asean 6 will grow slightly slower at 4.9% and China at 4%. North Asia, Latin America and Eastern Europe will chug along at 2.4%, whilst advanced economies in the Eurozone and America will achieve rates of growth between 1.4% to 1.8%. The role of managers is to identify market opportunities that would provide future returns. Consequently, the Asian region which, as explained in part 1 of this article, had flaunted the greatest transformation over the past 5 decades, will yet remain dominant in the pecking order. China will add USD 1.7 trillion annually to market growth; the United States USD 1.2 trillion and the Euro area just about USD 500 billion. Interestingly, our model suggests that India will, over the coming 5 years, on an average provide new market opportunities to the tune of USD 450 billion per annum. If the sums are collated for a 5-year period, the additions to global markets by 2028 present an interesting landscape. China remains the largest growth story, adding USD 8.6 trillion, compared with USD 5.5 trillion in America. India and the Euro area will add USD 2.1 to 2.5 trillion each, and other markets such as the Asean 6 and Latin America will lag behind.</p><p> Global business corporations have historically based their Asia strategy on the premise of a hub-and-spoke model where a preferred manufacturing location, frequently China, served an entire region and eventually the whole world. Multinationals could divert brick-and-mortar investments into places that were considered productive and made logical sense. Now, with rising nationalism and the imposition of trade barriers, companies have been forced to revisit this strategy. Large markets like India, will out of compulsion, through trade restrictions, force companies to produce locally.</p><p>Ultimately, it all boils down to the perception of risk. Businesses have to examine whether the greater risk lies in an investment going sour or in the potential loss of a market opportunity, because managers felt unwilling to take a punt on where future growth might stem from. At our CFO forum session, hosted recently, on the subject of risk, the Finance Director of a large Japanese company summed it up beautifully when he explained that from the perspective of his organisation, the greatest risk going forward would be in missing out on the India story. Having said that, local production is not always easy, because existing supply chains would need to be reshuffled and that comes with headaches and capital. However, what distinguishes winners from losers is the ability to take risks and time investments so that capacities are created ahead of demand. Going forward, the Asian region will continue to be the key driver to global growth and India constitutes a sizeable chunk.</p>
