06/08/2015
Asia / Economics
Asia-10 growth in real fixed capital formation has fallen below 3% per year and that simply won’t sustain the kind of GDP growth needed to raise incomes and employ growing populations. Much of the great investment slowdown is ‘structural’ – owing to the steady rise in incomes over the past few decades.
Asia’s investment growth has slowed to a crawl. After averaging 15% per year for decades, real investment growth in the Asia-10 has slowed from an 11-odd percent pace in 2008, to an average of 6.5% in 2009/10, 5% in 2012, 4% in 2013, and below 3% in 2014. The drop isn’t just about China, where many would say a slowdown is overdue. These figures are simple averages of the Asia-10, so tiny Singapore counts just as much as the massive mainland.
For most Asian countries, including China and Singapore, the issue isn’t how to guard against ‘over-investment’, it’s how to stop its slide of the past few years. Asia-10 growth in real fixed capital formation has fallen below 3% per year and that simply won’t sustain the kind of GDP growth needed to raise incomes and employ growing populations.
How can Asia’s great investment slowdown be stopped? How can it be turned around? Alas, a big part of the answer is you don’t; much of the great investment slowdown is ‘structural’ – owing to the steady rise in incomes over the past few decades. To this extent (but no further), slower investment is good news, not bad.
But mindsets have to change. Officials, ratings agencies, and fund managers all need to let go of 1997. Everybody wins when capital abundant investors lend to capital scare borrowers. Everyone loses when the opposite occurs, as is the case today. Periodic crises shouldn’t mean you throw the baby out with the bath water.
Until the much-needed mindset shift occurs, no amount of funding from an AIIB or other institution will succeed in lifting domestic investment in the region.
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