Asia's investment growth has slowed to a crawl: analysis

Mindsets have to be shifted for change.

It has been noted that Asia’s investment growth has slowed to a crawl.

According to a research note from DBS, 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 6.5%, on average, 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, says the report.

Savings and investment have been key to the growth equation in Asia since 1950 as indeed they are everywhere. Higher incomes tomorrow can only come from sacrificed consumption today.

With few exceptions, the more you save, the faster you grow. So far, Asia’s GDP growth hasn’t suffered much. In simple average terms (again to avoid heavily biasing the picture with China), growth has run between 4.5%-4.75% for the past four years.

Heres' more from DBS:

A brighter future - Asia’s incomes continue to rise and slower investment is a natural part of that process.

But investment growth has slowed to below 3% per year and that won’t sustain the GDP growth that Asia is accustomed to and needs to keep incomes rising and populations employed.

Current account surpluses are standing in the way of greater domestic investment in all Asian countries save for Indonesia and India.

A swing to modest 2%-3% of GDP deficits could lift investment in the region by 8-9 percentage points of GDP – a huge amount.

But mindsets have to change for this to occur. 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 it is 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.

Some say you can’t squeeze blood from a turnip. It’s just as hard to shovel water into a fire hydrant.