PERDANA LEADERSHIP FOUNDATION CEO FORUM 2014 “IS THE WORLD HEADING

PERDANA LEADERSHIP FOUNDATION
CEO FORUM 2014
“IS THE WORLD
HEADING TOWARDS
ANOTHER FINANCIAL
CATASTROPHE?”
24 September 2014
AZMAN YAHYA
1
SIMPLE ANSWER IS YES
BUT
• WHEN?
• SEVERITY?
• FINANCIAL OR ECONOMIC OR BOTH?
TO GAUGE WE NEED TO LOOK AT TRENDS
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2
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FOUR MAIN TRENDS TO CONSIDER
1. ECONOMIC CYCLES
2. GROWING DEBT
3. DIMINISHING INVESTMENT RATIO
4. RISING UNEMPLOYMENT
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3
The world economy bounces up and down but hit first truly global
recession in 2009 since WW2
4
Government debt has increased since the start of the crisis and is
expected to grow further in many countries
gggh
5
Risk of deleveraging
►
Global debt exceed $100 trillion in 2013
►
Government debt now stands at $54 trillion
►
US public debt is $14 trillion
($44,000 per every man, woman and child)
►
Deleveraging is inevitable but how do you stop a juggernaut without being
crushed?
6
Risk of induced inflation
►
The core view is US debt is so large that it cannot repay
►
Options:
•
•
•
•
Default (Argentina)
Haircut (Greece)
Austerity (state defaults on its own citizen)
Inflation (erodes the real value of public debt)
►
In 1946, US debt to GDP ratio was 108.6%.
But reduced by about 40% within a decade by inflation
►
50% of US public debt is owed to foreign creditors.
Inflation risk > lost of confidence > offloading > crash financial markets
7
Declining investment in developed economies reflects the ebbing
of a post-WWII investment boom in Western Europe and Japan
8
Global unemployment exceeded 200 million in 2013
9
What can trigger another financial crisis?
►
Weak oversight
►
Bursting bubbles
►
Inflation
►
Credit event
►
Loss in confidence in US$
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NOT ALL BAD NEWS ☺
Shift in global economy
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Asia healthier than pre 1997 crisis
►
Asian central banks sitting on $6 trillion reserves
►
Many currencies no longer pegged
►
China moderating growth – move from high investment to more sustainable
consumption led growth
►
Potential for regional coordination - Asean + 3
13
Malaysia needs to put house in good/better order
►
Avoid temptation of easy credit and proliferation of shadow banking
►
Purposeful government spending to reduce public debt early
►
Shore up reserves
►
Change social fabric
►
Address inequality by ensuring
Equal opportunity
Avoid political capture
Appropriate tax structure
14
THANK YOU
THANK YOU
[email protected]
[email protected]
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