Transcription of Finance News Network Interview with IHS Inc. (NYSE:IHS) Senior Director and Asia Chief Economist at IHS Global Insight, Rajiv Biswas Lelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me today from IHS Inc. (NYSE:IHS) is Senior Director and Asia Chief Economist at IHS Global Insight, Rajiv Biswas. Rajiv, welcome to RIU’s Good Oil conference here in Perth.
Rajiv Biswas: Pleasure.
Lelde Smits: IHS Inc. (NYSE:IHS) provides information, analytics and analysis globally for businesses and governments, including the Australian Government. Which regions do you think will drive future growth and which may drag?
Rajiv Biswas: When we are looking at the decade ahead, I think the world economy will still be very much led by emerging Asia. And, the main drivers will still be China and also India and the ASEAN [The Association of Southeast Asian Nations] grouping of ten nations. I think these are the three locomotives for emerging Asia and also to a large extent leading global economic growth.
I think when we look at the problems of the euro zone we expect protracted weakness in Europe to continue. Although we expect a moderate recovery over the next several years in Europe, growth will still be relatively weak.
Lelde Smits: While you believe global consumer markets will be driven by emerging growth from Asia the threat of a hard landing in China still lingers. What signposts will you be looking at to determine China’s future economic growth prospects?
Ragiv Biswas: We give a hard-landing scenario in China somewhere over the next three years a probability of around 20 per cent. So, it’s not our central case but it is a significant risk to be worried about.
And, some of the triggers that could create that hard landing are problems related to imbalances in the economy which is too dependent on investment and exports as the major drivers of growth, and not enough on domestic consumption.
Also, problems with unregulated informal lending, the so-called shadow banking sector, which has become more and more of a problem for the Chinese economy. And also, the problems of local government borrowing in the last three or four years which have now created problems for the banking sector which lent quite heavily to local governments.
And so, if all of these things came together it could potentially trigger a hard landing.
Lelde Smits: While the US economy appears to be improving the nation continues to grapple with policy headwinds. What is most alarming to you, the threat of possible tapering of economic stimulus, the approaching debt ceiling or a possible conflict in Syria?
Rajiv Biswas: I think when we look at the drags on the US economy clearly the government spending cuts are the main drag at the moment that we are seeing. And, that's brought growth down this year despite relatively good performance from the private sector.
We think going into next year the private sector recovery will continue, the US manufacturing sector has seen quite a renaissance in competitiveness, so we’re seeing US exports picking up relatively well. And also, the oil and gas sector is booming in the US and that’s helping to boost competitiveness because it’s brought down the cost of gas for US industry and US households.
So, I think the central expectation is that the US economy will actually strengthen. The housing sector is also improving, but of course there are risks around the government spending cuts if they were to become a bigger drag. But, our central expectation is that US growth will pick up to about 2.7 per cent next year.
Lelde Smits: As we are at an oil and gas conference let's look at the price environment for oil. The price has recently been sent higher with the threat of a possible US military-led attack against Syria. How do you foresee this will impact the oil price?
Rajiv Biswas: Our expectation is that at the moment the oil price fundamentals are below where we are because of the geopolitical situation. So, we still think that this is the peak of the oil price at the moment and that fundamentals should bring it down.
But of course, a lot will depend on how the geopolitics play out. Syria is not an oil-producing nation. But, if there is a military intervention that escalates that of course could create the potential for oil spiking even higher.
Lelde Smits: Finally Rajiv, amid all the risks and warnings Australians are now being told our mining boom is over. As a chief economist focused in Asia would you agree with this statement and if so where should Australian’s be looking to for growth?
Rajiv Biswas: So I think it’s not appropriate to say that the mining boom is over. But I think what we’re seeing is that the levels of activity will moderate somewhat over the next couple of years. What I think this means is that Australia needs to diversity its economic base. I think that’s an imperative. And I think given that Australia is a high income economy, that diversification needs to be into knowledge industries.
Lelde Smits: Rajiv Biswas, thank you for joining us in Perth and for the global update.
Rajiv Biswas: Thank you.
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