"This is Asia's year," proclaims Dave Carbon, managing director for economic and currency research at DBS, Singapore's top bank.
Over the past decade, professional analysts and amateur pundits have portended the rise of Asia relative to a plodding, if not declining, United States (and Europe), and some have even argued that China's eventual pre-eminence is an almost teleological certainty; its eclipse by the industrialised West merely a 400-year anomaly. Yet, fortunately for the Western pretenders, the time for relinquishing that transient economic power has seemed indeterminate: not tomorrow, but, like death, at some time in the distant and then movable future.
Not any more, says Carbon -- that time is now. The tiger roar of the New Year will herald what he told FinanceAsia in an interview is "the biggest structural change underway in the global economy today".
The key quantifiable factor is "the shift in who generates the new demand every year -- local, indigenous, domestic demand that is the source, even the very measure of economic growth". And in 2010, that baton will pass from the US to Asia. The region will create more demand than the US, and will become the world's biggest driver of economic growth, Carbon argued.
The succession process has run for at least two decades, but the handover will finally take place, and Asia's leadership will likely last for the next 50 years, if not longer. "This is a big year. And it belongs to Asia," said Carbon.
Of course, demand growth in non-Japan Asia has been rapid during the past 20 years, typically averaging around 7% for the 10 leading economies in the region -- China, Hong Kong, India, South Korea, Taiwan, and the Asean member states of Indonesia, Malaysia, Philippines, Singapore and Thailand. Until today, the aggregate size of these economies has been too small, but as Carbon said, those 20 years of fast growth eventually add up, and the region is now about 44% of the size of the US economy.
This matters. Carbon explained with the use of a simple calculation: "Pretend US demand is $1 in size and it grows by 3% a year, as is typical. That generates three cents of new demand each year. Now consider Asia. If the US is $1 in size, then Asia is 44 cents 'big'. But grow that 44 cents by 7% and you will generate 3.08 cents of demand. That is, for every dollar of new demand generated by the US, Asia will generate $1.02 [3.08/3.00]."
Back in 1990, the US produced twice as much demand as Asia, but since then, as Asia has grown, it has become less and less dependent on the US consumer. This was the main reason why Asia recovered earlier than the US in 2000/2001, and why "Asia was able to pull off its latest V-shaped recovery with no help from the US", said Carbon.
Nevertheless, he warns that the region's dramatic recovery cannot be maintained indefinitely. He envisages "a palpable turn sideways" in growth by the end of 2010, suggesting a "square root-shaped" recovery. Demand will level off after the dramatic rebound from the "shell-shock" experienced after the collapse of Lehman Brothers in September 2008; supply will be hit as the excess capacity that has fuelled a double-digit increase in output starts to erode; and central banks within the region are likely to tighten monetary policy to cap incipient inflation.
But Carbon's message has a further twist. Not only is Asia now responsible for marginal demand, but China, not the US has become the region's most important export market.
In revenue terms, he pointed out, Asian (the top 10 economies excluding China and India) exports to China fell by $111 billion between July 2008 and January 2009, while exports to the US fell by just $27 billion.
So, the clear inference is that it wasn't a drop in US demand that caused Asia's initial collapse. The export shock delivered by China was four times greater than that delivered by the US. And, as Chinese demand has rebounded, fuelled by high dosages of bank credit, other regional economies have bounced back strongly.