C16149 Tigers and Cubs Analysts


Our top 5 Asia economists define Asian countries into two sets - striving cubs and ageing tigers.

Classifications like these are never perfect, but overall, our Asia cubs/tigers distinction closely matches the divergent contributions of domestic demand to GDP growth in Q2 (Fig 1) and Asia league table rankings (Fig 2).

To better understand why we believe this Asia cubs-tiger divide is a growing theme in the years ahead, we present comparative data on their vulnerabilities, opportunities and investment outlooks. Cubs have fewer vulnerabilities and more opportunities. Private credit in the tigers is twice that of the cubs, as is the tigers' export exposure to a cooling China. The tigers have had weak domestic demand, while the cubs have had larger lifts in their sovereign credit ratings since 2010. Opportunities for the cubs also include cheaper labor, abundant youth and low urbanization.  We are also optimistic on the investment outlook for the cubs - we see an investment boom in the making, buoyed by much stronger economic fundamentals and growth than the global EM benchmark. The rising allure of the cubs is starting to show up in actual FDI inflows, which is a key driver to lift the cub's relatively low investment-to-GDP ratio. The ongoing global reach for yield should also help attract foreign investment to the cubs.


View the full report here for the 2016 - 2018 outlooks for the following countries:

Australia, China, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand.

See our most recent news below. Euben Paracuelles was one of the speakers for the Nomura Investment Forum Asia (NIFA) in Singapore. Below article is based on his interview during the conference.  



Asian cubs making their move as tigers age

Wednesday, June 7, 2017 - 05:50


Euben Paracuelles

ECONOMIC performances are diverging between two groups of economies in the region - Asia's ageing tigers and striving cubs. The tigers - which include economies such as China, South Korea, Taiwan, Hong Kong and Singapore - are mostly developed economies in North-east Asia, where growth has been stuck at low levels or is slowing significantly, saddled by high debt levels, low productivity growth and rapidly ageing populations.

By contrast, the cubs are less-developed economies which have plenty of room for catch-up to increase per capita incomes and where the opportunities to boost potential growth are large. They have young labor forces with a median age of 29.1 versus 40.1 in tiger economies and sound economic fundamentals with much lower debt levels, easing external vulnerabilities, and inflation in check. Asean is home to a few of these cubs, and Indonesia and the Philippines are the most promising. These two Asean cubs have been getting their act together to seize opportunities. Unemployment rates have started to fall more meaningfully in recent years, which means their favorable demographic profiles are gradually turning into a competitive advantage by generating jobs that productively absorb new entrants into the workforce.

They are making significant progress on structural reforms, even if politics sometimes dominate headlines, helping to improve the overall business climate and raise much needed investment. Indonesia is already climbing up the World Bank's "Ease of Doing Business" rankings, and has recently earned a rating upgrade by S&P to investment grade. In the Philippines, there are clear signs that, despite President Rodrigo Duterte's controversial rhetoric, his government is taking steps to reduce corruption and cut red tape.


Moreover, building infrastructure is at the heart of the economic agenda of both governments, and both are constantly looking for ways to accelerate execution. For instance, there is an emerging thrust to decentralize disbursements, which is not only necessary for these large archipelagos, but also plays to the strength of their two presidents, who were previously local government leaders. In addition to early measures by the central government to enhance the local absorptive capacity to implement projects, Indonesia has legislated that 25 per cent of the transfers to regional governments need to be allocated for infrastructure spending. In the Philippines, Mr. Duterte has a strong incentive to make more progress on transport-related projects as the first elected president from Mindanao, home to some of the provinces with the widest infrastructure gaps.

There is a regional facet as well which may enhance implementation. Infrastructure is now seen as a way to promote greater connectivity in the region. At the Asean investor seminar in Cebu in April, where the region's top policymakers gathered, elevated global uncertainty was well flagged and used to strengthen commitments to increasing intra-regional trade and closer integration to build resilience against external risks. Indonesia and the Philippines seem to be leading the charge on this effort and have already taken some early steps. During President Joko Widodo's official visit to the Philippines, both leaders launched a sea route between Mindanao, Bitung and Manado.

Finally, more fiscal reforms are expected. Indonesia's relatively successful tax amnesty program is being complemented by a determined effort to improve tax administration. If the lessons from the Philippines are anything to go by, there is scope for a significant pick-up in tax collections in Indonesia without changing tax rates. The Duterte government is also pursuing comprehensive tax reform and is to legislate the first of five packages this year following the decisive vote in the Lower House of Congress at the end of May. These actions should promote sustainable fiscal positions over the medium term.

Clearly, this divergence of economic performance in Asia is no flash in the pan, not only because the tigers are facing tough structural challenges - particularly from ageing - but also because the cubs are finally taking action to boost their own long-term growth prospects.

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