What ought to matter more is whether efforts are being stepped up to achieve sustained growth over the medium-term – by reducing vulnerabilities in the system and implementing structural reforms. Second, markets seem to be under-estimating the pace of monetary policy normalisation, particularly by the US Fed. The Fed’s guidance suggests one more rate hike in 2017, and three each in 2018 and 2019. But markets are pricing in less than three hikes in total for the rest of this year through 2019. Granted – with lower oil prices and muted wage growth, the risk of inflation surprising on the upside is low. But what if that risk materialises, especially if the labour market tightens further? Unemployment is already around its natural rate. Past experience suggests that the pass-through from labour market tightness to inflation tends to accelerate as unemployment falls below the natural rate. That could well lead to a faster pace of monetary policy normalisation than the market currently anticipates. Finally, there is a conundrum between volatility and uncertainty. Why is volatility so low in financial markets when uncertainty is high on the policy front? Perhaps it is because uncertainty about economic growth is lower. - The size and number of revisions to global growth forecasts have clearly come down. But surely, political uncertainty is at elevated levels? And when politics is uncertain, can the economics remain unaffected? A disorderly Brexit could lead to increased market turmoil and trigger sharp asset price corrections.
Asia’s imports of consumer goods as well as modern services, such as telecommunications, information, and financial services, have risen sharply over the past decade. Second, sustained investments to build up physical and human capital. China’s fixed asset investment in education and infrastructure has expanded rapidly, growing by about 20% annually since 2009. Indonesia, Thailand and the Philippines have ramped up development spending to address infrastructure deficits. Vietnam has been making heavy investments in education, at almost 20% of total public expenditure. This is beginning to show results in its global ranking in PISA – the Programme for International Student Assessments. Third, growing economic integration within the region. Asia already has extensive cross-border production networks, particularly in the electronics and automobile industries. China’s Belt and Road Initiative will facilitate not just infrastructure investment in the region but, more importantly, strengthen connectivity. As new projects gain traction, there will be increased regional flows of trade, capital, and people in the next five to ten years. Finally, I want to touch on a new source of untapped potential – the CLMV countries: Cambodia, Laos, Myanmar and Vietnam. They are increasingly plugged into the global economy and regional supply chains, participating as downstream manufacturers in regional production networks. In Vietnam, manufacturing now makes up a third of the economy. - Vietnam has developed into one of the world’s top electronics exporters, with Samsung producing about 40% of its phones there.