Dim global growth prospects in 2013

The year 2012 is coming to a close, leaving behind many problems. Most are man-made originating in politics.

Yet, sadly, there are no major political leaders who have the credibility, charisma and strength of character to garner the needed political resolve to set their own nations or the world on the righteous path of sustainable growth.

The re-election of US President Barack Obama helped a little. As I write, even if he is able to persuade opposition Republicans in Congress to a deal to avoid the looming “fiscal cliff” (self-inflicted arrangement involving US$600bil of indiscriminate tax hikes and “sequester” cuts in military and welfare spending, bringing on a 3% reduction in 2013 fiscal deficit), the resulting cuts and taxes will invariably become a drag on growth estimated by most to be at least 1% of gross doemstic product or GDP in 2013.

The downside risk to global growth is likely to be exacerbated by the spread of the ongoing austerity to most advanced nations. Thus far, the recessionary fiscal drag has been centred on the eurozone periphery and United Kingdom. Latest indicators point to it spreading to the eurozone's core (including Germany and France) and Japan.

This only confirms the International Monetary Fund (IMF)'s contention that excessive front-loading of fiscal austerity will “dim global growth prospects in 2013.”

The recent near simultaneous leadership changes in China, Japan and South Korea offer East Asia a fresh opportunity for reconciliation after a period of tension.

The region's three biggest economies now appear to be confidently over the hump following the Tokyo and South Korean elections last week and Beijing's leadership “jockeying” resolved by last month. But, realistically, they continue to face headwinds from a stumbling world economy.

North Korea's rocket launch last week adds to regional uncertainty. So does continuing unrest in Syria and the Middle East.

Critical to the well-being of nations is how they will use this opportunity to get their ties back on track.

Enter 2013

The year 2013 is a big step following a tough year. To me, six events had dominated:

(i) Europe held the world's fate in its unsteady hands for most of the year. It took the European Central Bank (ECB) president Mario Draghi's promise “to do whatever it takes to save the euro” to rid the sting out of the crisis, with a later pledge of “unlimited” bond buying;

(ii) The impact of the war in Syria and Morsi's uneasy presidency in Egypt;

(iii) Leadership transition in four of the world's five largest economies, with “elections” in United States, France, Japan and China ushering promises of new approaches to politics and policy making;

(iv) Serious political disputes in the East Asia seas;

(v) recent massive anti-Putin unrest in Russia; and

(vi) Serious transformation moves in Myanmar.

Today they still continue to dominate. For the moment, it is too soon to tell what their politics will bring in 2013. But one thing is for sure: Global business gloom has deepened since the third quarter of 2012 and is likely to persist.

I think there are some important lessons.

First, investment risks have turned more political. US businesses today have more than US$1 trillion in cash reserves and committed facilities awaiting investment. For them, the nightmare is Washington staying gridlocked, four days before falling off the “cliff.” Hopefully, like before, the “game of chicken ends at the last minute.”

Second, even a small economy like Greece (barely 2% of eurozone economy) can have a material impact on global business sentiment as the “Grexit” drama showed.

Third, the European episode pointed clearly that governments can't cut and grow. One of the important takeaways from 2012 is that it is critical to always focus on the big picture and not be grappled by event risks as these come and go.

As a US civil rights activist once said: “For all its uncertainty, we cannot flee the future.” So as we step into 2013, nations just have to embrace risks and learn to manage and live with them. Scurrying away will not help.

OECD slashes forecast

Paris-based rich nations' think-tank OECD (Organisation of Economic Co-operation and Development) said in mid-December that its composite leading indicators (CLIs) point to widely differing growth outlooks among its 34 member states.

Signs are of a modest pick-up in United States and the United Kingdom, slowdown in Canada and Russia, and deepening recession in the eurozone (including significant slackening in Germany and France) and in Japan, and possibly Brazil.

OECD's CLIs are designed to provide early signals of turning points between economic expansion and slowdown, based on extensive data that have a reliable history of signalling changes in activity.

Overall, barring worst fears won't come to pass, combined OECD GDP will only rise 1%1.5% in 2013, not much change from 2012, with a modest pick-up to 2%2.5% in 2014.

Not unlike IMF's forecast, OECD growth will only expand if eurozone deals seriously with its political and debt crisis, and the United States finds a timely credible path to avoid the “cliff.”

Absent such actions, world growth would slide into another downturn, with deepening recession in the eurozone periphery, and contraction or stagnation at the core and related advanced nations. What's needed is “very careful policy steering”.

Eurozone manufacturing kept contracting in November for a 16th month. Data show signs of recession extending into 2013 as policymakers struggle to come to grips with the crisis. For businesses and investors, the October Markit survey concluded that in 2013 companies can expect challenging sales and profits, causing many to focus on cost cutting.

Eurozone: ECB slashed its forecast for the eurozone in 2013, signalling another difficult year ahead. Echoing the IMF, it now expects growth of between shrinking at 0.9% to a growth of 0.3% next year (minus 0.5% in 2012).

The level of uncertainty was reflected in its first attempt to forecast 2014 at 1.2%. “Gradual recovery should start later in 2013” (GDP shrank 0.1% in the third quarter of 2012).

As the eurozone slipped into recession for the second time in four years, Germany's growth slowed down to 0.2% in the third quarter of 2012 (0.3% in the second quarter); expectation is for it to expand 0.4% in 2013 (from 1.6% in 2012). However, Germany faces a “favourable environment on the back of expansionary monetary policy”. Expect some revival later on in the second half of 2013, following better-than-expected jump in investor sentiment in December.

Industrial output in Germany fell 2.4% in October (minus 1.6% in September); France reported a 0.6% drop while Spain and Portugal had increases of 1.2% and 4.8% respectively.

“France is facing conditions much worse than Germany it's fast becoming aligned with its southern neighbours of Spain and Italy.” Germany, given its openness, cannot “prosper alone; it has a particular interest in the welfare of its partners”.

Nevertheless, eurozone's peripheral shows little sign of recovery: GDP continues to shrink because of fiscal austerity, euro's excessive strength and severe credit crunch. Already, social and political backlash against more austerity is becoming overwhelming with strikes, riots, violence and rise of extremist politics.

They just need growth. Another year of muddling through only revives old risks in a more virulent form in 2013 and beyond.

The United States: Growth in United States remained anaemic at 1.5%2% for most of 2012. Political and policy uncertainties abound. Fiscal worries are centred on four key areas: taxes, spending, stimulus and borrowing.

The United States needs:

(i) A package exceeding US$1 trillion in revenues over 10 years and set in motion a tax reform process in 2013 to limit tax deductions and lower rates for businesses and individuals;

(ii) A package of spending cuts with less generous social benefits, health spending reductions and cuts in selected mandatory programmes, including military;

(iii) Some short-term stimulus measures, especially on infrastructure projects and on education and R&D; and

(iv) Raising the debt ceiling now.

Already, with continuing impasse even at this late hour, forecasters are downgrading growth expectations for 2013. “It's a dangerous situation,” says Nobel Laureate P. Krugman. “The opposition is lost and rudderless, bitter & angry as it lashes out in the death throes of the conservative dream.”

All this is happening at a time of significant game changes boosting the outlook:

(a) Housing is recovering;

(b) Manufacturing re-engineering is underway;

(c) The third quarter 2012 growth is up 3.1% (1.3% in the seconbd quarter), with consumer spending rising 1.6% and unemployment down to 7.7%, its lowest since 2008;

(d) Pent-up demand is awaiting to be unleashed upon clarity on the future fiscal pathway; and

(e) New future in energy transformation, especially from low cost shale oil and gas.

But first, the daunting task to regain business and consumer confidence needs to begin now. Because of continuing uncertainty, consensus forecast chances of 24% for greater than 3% growth in 2013, same as chances of a recession.

On the whole, they expect growth of 2.3% in 2013, better than three months ago. But, this won't materially help the 12 million jobless. Even by 2014, unemployment is unlikely to be lower than 7%.

East Asia and Pacific (EAP): World Bank's December update places growth in China and developing East Asia at 7.5% in 2012 (against 8.3% in 2011) in the face of weak external demand.

Growth in EAP is still the highest among the developing world and constituted 40% of global growth, but is set to recover to 7.9% in 2013.

EAP (excluding China) will grow 5.6% in 2012, 1% higher than in 2011 due mainly to a rebound of activity in Thailand, strong growth in the Philippines, and relatively modest slowdown in Indonesia and Vietnam. Malaysia held a steady course.

For the entire region, easy fiscal and monetary policies supported growth. Next year, the region will benefit from continued strong domestic demand and the mild expected global recovery, especially in the second half of 2013.

I agree with the World Bank that most EAP nations have retained strong underlying macroeconomic fundamentals and should be better able to withstand external shocks. But many risks remain, including open vulnerabilities in the eurozone that could readily lead to renewed financial market volatility, and global slowdown: The United States falling off the “cliff” resulting in a loss of growth push for EAP; potential hostility arising from political territorial tensions in the Asian seas; and fallout from unexpected developments in Syria and the Middle East.

However, the robust growth in services this year reflects strong domestic support derived from continuing rising incomes. As these trends gather strength, services can be expected to emerge as a new growth driver in EAP.

For the region, latest business sentiment surveys have turned positive for the fourth quarter of 2012, reversing two consecutive quarters of declines, while global uncertainties remained the biggest concern for the region's firms.

China is expected to grow by 7%-9% in 2012 (9.3% in 2011), the lowest since 1999, due mainly to lower domestic demand growth reflecting the 2011 stabilisation measures. World Bank expects China to expand 8.4% in 2013 fuelled by fiscal stimulus and faster effective implementation of large investment projects.

Indications are the recent slowdown has now bottomed out: The third quarter 2012 GDP rose 7.4%, below the historical trend and the lowest in 14 quarters, but its quarter-on-quarter growth reached a 9.1% annual rate in the third quarter of 2012. Growth is, however, expected to slacken to 8% in 2014 as productivity and labour force growth tail off.

Consumer prices will likely continue to fall, averaging 2.8% in 2012, but will rise moderately to 3.3% in 2013 as growth picks up and the lagged effects of easy monetary policies in the second half of 2011 take hold.

China's policy challenge is to balance the trade-off between supporting growth and reforming. But, priority remains at implementing targeted tax cuts, health and social welfare spending and large-scale social housing to support consumption.

What, then, are we to do?

Geopolitical uncertainties will engulf 2013. Consumers, corporate and investors are bound to remain cautious and risk adverse even scared.

But prospects in EAP look bright and the region continues to have ample fiscal space to counter the impact of external shocks.

Much of the global uncertainties are still being generated in Europe. It's messy there right now, but the recovery of Europe will come some day.

Today, the ratio of stock market value to GDP averaged worldwide at 80%. In peripheral Europe, this ratio ranged from 23% in Greece to 38% in Portugal akin to where Asian counterparts were in 1998. Italy's total stock market value is today about the same as Apple's.

R. Sharma of Morgan Stanley made these and other insightful comments in the Financial Times, with this refrain: Is Italy worth no more than Apple? Food for thought.

Look at it this way. We all have to keep the perspective in approaching 2013 in order to avoid our own self-made “cliff.”

WHAT ARE WE TO DO
BY TAN SRI LIN SEE-YAN

 ● Former banker, Dr Lin is a Harvard educated economist and a British Chartered Scientist who speaks, writes and consults on economic and financial issues. Feedback is most welcome; email: starbiz@thestar.com.my.

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Food for blog

< Chan: Whenever we attend an event, there is live tweeting, live blogging, Facebook updates and we ask questions that our readers pose to us.

 

DO YOU remember Doogie Howser, MD, an American television comedy-drama starring Neil Patrick Harris as a teenage doctor?

If you were a child in the 1980s, you could not have missed it. Howser kept a diary on his computer and the episodes ended with him making an entry in the diary. That was possibly our first introduction to what is now known as web log or blog.

According to Merriam Webster’s Dictionary a blog is a website that contains an online personal journal with reflections, comments, and often hyperlinks provided by the writer.

Blogs have become tremendously popular among Malaysians as they look for an alternative source of information to supplement what is being reported in mainstream media.

By the end of last year, marketing research company NM Incite tracked over 181 million blogs around the world, up from 36 million only five years earlier in 2006.

So how big is blogging? NM Incite says three out of the top 10 social networking sites in the United States — Blogger, WordPress and Tumblr — are for consumer-generated blogs.

Blogger is the largest of these sites with more than 46 million unique US visitors during October 2011, making it second only to Facebook in the social networking category, and Tumblr was the fastest-growing social networking or blog site on the top 10, more than doubling its audience since last year from home and work computers to 14 million unique visitors.

Overall, these three blogging websites combined for 80 million unique visitors, reaching more than one in every four active online users in the US during October 2011.

And who are these bloggers and what else do they do online? A study by NM Incite indicates that women make up the majority of bloggers, and half of bloggers are aged 18 to 34.

Most bloggers are well-educated: seven out of 10 bloggers have gone to college, a majority of whom are graduates and about one in three bloggers are mothers, and 52% are parents with children under 18 in their household.

Yang: Blogging with passion will eventually allow you to do it full time.

Besides this, bloggers are active across social media: they’re twice as likely to post/comment on consumer-generated video sites like YouTube, and nearly three times more likely to post in message boards/forums within a month.

According to Nuffnang, Asia-Pacific’s first blog advertising community, bloggers generate income through ads placed on blogs by various brands, and become part of a close-knit community through a vast range of exclusive events and contests.

“In Malaysia, blogging started growing exponentially in 2007 when Malaysians started seeing its commercial viability,” said Nuffnang co-founder Timothy Tiah.

Nuffnang has approximately 250,000 bloggers on its books and Tiah revealed that almost 50% of them are active.

“In the US, some bloggers have successfully evolved into full-fledged media companies that employ full-time writers and editors,” said Tiah who believes blogs and traditional media can co-exist.

“Clients do not view blogs as an alternative to traditional media. We are benchmarked against Twitter and Facebook.

For example, having an editorial piece in the New York Times supersedes one by an online publication,” Tiah explained.

Local blogging heroes such as Paul Tan and Vernon Chan, and Singaporean Dawn Yang agree that blogging with passion will eventually enable one to do it full time.

Chan said his site (vernonchan.com) was born out of the love for technology.

“I enjoyed writing but in 2009, I decided to take it more seriously and focused my writing on gadgets and tech-related news,” said the former graphic designer.

“The blog now operates as a tech website with four writers on board.

“The tech scene is fragmented with plenty of players, but it’s healthy competition.

“I look up to sites like amanz.my and soyacincau.com as they were pioneers in this field,” he added.

Chan said that to remain competitive, a blogger needs to focus on speed, frequency and being current.

“Whenever we attend an event, there’s live tweeting, live blogging, Facebook updates and we ask questions that our readers pose to us,” said Chan.

He walks around with a tablet, two smartphones, a laptop, a DSLR camera and is always connected with his readers thanks to U Mobile broadband.

Tan echoed Chan comments and added that an honest blogger serves the reader and not the advertiser.

“We have gotten ourselves in trouble with a particular company a few times as they were not happy with some of the comments from the readers that were published on the website.

“They stopped inviting us for test drives and events for a while, but we serve our readers, and readership is currency, ” said Tan, the founder of paultan.org, a leading motoring website in Malaysia.

Tan also debunked the myth that people will read any content as long as its free online.

“Online readers are looking for something fast so it is important to be quick.

“We do live updates and we have trained our readership,” said Tan, whose company now owns popular Malay blog site, Ohbulan.com among others.

Tan did not mince his words when asked to comment about bloggers who only write advertorials.

“There are bloggers who only attend events if they are paid and will only write a blog posting if there’s a monetary exchange,” he said.

Across the causeway, controversial fashion and lifestyle blogger Dawn Yang (clapbangkiss.xanga.com/) was in Kuala Lumpur recently to attend an event and the 27-year-old told MetroBiz that she started blogging to keep in touch with her friends.

“It started by accident but in 2005, I won an online competition as Singapore’s hottest blogger. That opened many doors for me,” said Yang who was sent to Taiwan for a year to be an artist.

She also secured several endorsement deals from international brands to promote their brands on various platforms.

“Blogging has evolved over the years with Twitter, Instagram and Facebook. We can’t just operate on one platform,” said Yang.

Blogging in Malaysia is seen as an easy way to make a quick buck, but to quote blogging guru Alister Cameron: “As I have repeatedly written in one form or other, blogging is not about writing posts. Heck, that’s the least of your challenges. No, blogging is about cultivating beneficial relationships with an ever-growing online readership, and that’s hard work.”

By Nevash Nair

People as a product!

In digital space, users are increasingly being shaped as commodities by various sites and services.

LAST week, social photo-sharing application Instagram caused an uproar when it announced changes to its terms and conditions.

The changes were related to its advertising policy, and were interpreted by many people as the company reserving the right to share user information and pictures with advertisers (or to be used in advertising) without permission.

Instagram has since reversed that policy and apologised for the “confusing” language, stating: “Legal documents are easy to misinterpret.” (You can read its response at http://bit.ly/U79Nld.)

This seems to have pacified some users, but many are still fuming, while others have opted to try different photo-sharing apps as an alternative.

There are two primary issues with this. One is a privacy issue, in that the company would even consider sharing user information and pictures with its parent company Facebook and other third-party organisations (including advertisers).

The other is copyright; in the same response, Instagram co-founder Kevin Systrom wrote: “Instagram users own their content and Instagram does not claim any ownership rights over your photos. Nothing about this has changed.”

Users had every right to be upset. These are serious issues with severe repercussions, and it is becoming more and more common that online sites and applications are usurping the rights and control of their users. Facebook’s constant changing of privacy settings is legendary. The deeper we embed ourselves within such social network sites, the more we seem to get walled in.

As the days wear on, we find it increasingly harder to escape – most of our connections are in our social network of choice, our memories are stored within our profiles, and we are relying on it to be our source of information.

In many cases, we have come to depend on it for almost all of our interactions – we no longer need to remember people’s birthdays, we can send messages to each other conveniently without the need to store addresses, and we can broadcast our lives to all our friends at the click of a mouse.

Whether or not the reliance on such technology is a good thing is a different debate, but the fact is that the services these sites provide – it doesn’t matter if we never needed them before – are extremely useful.

However, many users don’t realise that this is still a service. Such technology has become so embedded in our lives that many of us have taken it for granted.

The fact that it is also primarily operated on the Internet has contributed to this sense of entitlement. Why buy newspapers when you get the news online for free? How many of us still send text messages via SMS now that there is iMessage, Blackberry Messenger and WhatsApp? With Skype and Viber, who needs to make traditional phone calls?

In some cases, it is easy to see how the companies behind them are making money. Newspapers now provide news for free (some have paywalls) with the hope of driving more traffic to their sites, which are plastered with advertising.

Apple and RIM, the maker of the Blackberry, promote their messaging systems to encourage people to buy their devices. Skype has a premium service that users can pay for as well as cheaper computer-to-phone rates which helps supplement its income. In that sense, the products these companies offer are obvious.

Social network sites like Facebook, Instagram and Twitter also have a product: You and me.

What they essentially do is no different from the media outlets – they sell their user base to advertisers. Unlike the print and broadcast media, however, these sites tend to have more information on their users which can be sorted or mined to help advertisers reach their target market.

Each update we post on these sites contains more information about our lives and what interests us – whether it’s in the words we use, the places we check in from or the photos we upload. And they have a lot of information. Citing European policy law, a student from the University of Vienna made a request to Facebook to hand over all the information it had on him. And Facebook provided it – all 1,200 pages of it.

The point here isn’t about how scary it is that a company has so much information on each of us – this too is a different debate.

The concern is that as technology advances, we are increasingly being shaped to be a product, and this is an awareness we have to carry with us constantly. It is pertinent to note that this is not a new phenomenon – the whole basis of the advertising industry is based on consumers being the product.

This is why newspapers are able to subsidise publishing costs to sell their products at a relatively low price (or in some cases, offer it for free) and why we get to watch television for “free”. Or pay very little.

We need this awareness because it will help us make decisions about how we navigate our digital lives. It will also help us reclaim some of the control – and our rights.

Instagram may have reversed that new policy for now, but there’s no saying it won’t come back in another form. Facebook has gotten away for many years with changes that its users do not like because few people are willing to walk away from it.

This is not to suggest that what these companies are doing is right. But the adage that nothing is free rings true in this situation. There are alternatives but each comes with a price.

The alternatives to these sites – some of which are on open-source platforms – may not be as polished and lack the critical mass to be as effective as the big social sites. Then there are the commercial entities which charge you (Flickr, for example, is capitalising on a sudden exodus from Instagram to its platform, offering its paying customers an additional three months of service).

It is only by carrying this awareness with us always that we can truly make the right decision – whether to stick with these companies, or stick it to them.

ReWired By Niki Cheong

Niki has just completed his MA Digital Culture and Society at King’s College London. Connect with him at http://blog.nikicheong.com or on Twitter via @nikicheong. Suggest topics and issues on digital culture, or pose questions, via email or on Twitter using the #Star2reWired hashtag.