Asia is where Britain should look for growth
Brexit is all about doing trade deals and getting agreements with the 85pc of the world economy beyond the EU
During this pandemic, the UK’s political class has rightly been absorbed with care home rules, test-and-trace and tiered restrictions. Meanwhile, by far the most important story of our time has gathered pace.
This weekend it’s all eyes on Brexit – clearly hugely important, involving several world-ranking economies, not least the UK. How our European Union departure pans out will affect the lives of several hundred million people.
Yet, deal-or-no-deal, Brexit is a footnote in history. Rows over “level playing fields” and renewed UK sovereignty won’t be major themes when historians look back a century from now.
For the really big development of our time, the utterly dominant geo-strategic mega-trend, is the on-going shift in the economic balance of power from West to East. And, over the last year, that shift has been both accelerated and accentuated by this pandemic.
This autumn, a surge in Covid-19 cases forced the US and most European nations back into lockdown. Yes, there are vaccines coming, but – with the best will in the world – there will likely be setbacks and national rollouts will anyway take time.
The UK, and much of Europe, will remain shuttered until Easter and probably beyond. The economic impact is mind-boggling.
The Government is spending around £1bn per day on furloughing and other support measures, as our stymied economy struggles to generate tax.
That’s why state debt is up £400bn this year – an annual budget deficit of 19pc of GDP, twice what we borrowed following the 2008 financial crisis.
Over the coming half-decade, national debt, at a post-war peak as entered into this pandemic, will balloon from roughly £2 trillion to £3 trillion – well over £100,000 per household. That’s why no-one wants to think seriously about the dangers of debt being absorbed by the Bank of England.
Astonishing monetary profligacy is happening across the Western world, of course, as panicked governments, cheered on by ambitious advisors with scant knowledge of economics, bury blatantly obvious lessons of history.
Across much of Asia, in contrast, anti-virus restrictions are becoming the stuff of distant memory.
In countries including China, India and South Korea life is returning to normal. With Covid-19 contained, bars and restaurants are bustling, buses and trains are crowded and cities are buzzing once again. The picture could hardly be more different.
So far during this pandemic, the US and Europe combined, home to 15pc of the global population, have endured almost half the world’s 1.6m Covid-related deaths. The often densely populated nations of Asia, though, while accounting for over a third of all people on earth, have registered less than a fifth of all fatalities linked to this virus.
Which brings us back to economics. Over the last three decades, since the Berlin Wall fell and economic liberalism was unleashed across the post-communist world, Western growth has clearly lagged Asia. And now, the highly uneven incidence of Covid-19, with the West suffering far worse, has widened those growth disparities even more.
Last year, pre-Covid, the “advanced” Western economies grew just 1.7pc on average. Prolonged and repeated lockdown means we’re heading for a collective 5.8pc GDP contraction this year, according to the International Monetary Fund - with the UK set for an 11pc drop, showing how badly lockdowns impact service-driven economies.
The West as a whole will rebound with 3.9pc growth next year, the IMF says, before returning to 1.7pc “steady state” annual expansion by 2025.
“Emerging and developing Asia”, in contrast, saw 5.5pc pre-Covid growth in 2019, over three times faster than the West. Most nations across the region then managed the pandemic either with shorter, more concentrated lockdowns, or avoided them altogether with far more effective “test and trace”.
Authoritarian government makes clampdown easier, of course – that, plus Asia’s broader recent experience of viral pandemics.
So Asian growth will contract just 1.7pc in 2020, on IMF estimates, before a huge 8pc GDP bounce-back in 2021. The region then returns to buoyant mid-decade trend growth of 5.9pc – again, well over three times faster than the West.
As Asia leaves Covid behind, the long shadow of this pandemic will remain over the West, even when the virus is long gone.
The quite extraordinary fiscal and monetary measures we’ve implemented to support businesses and households are not only ruinously expensive but extremely difficult fully to reverse.
This time last year, Western nations had an average national debt of 103pc of GDP. By the end of 2020, that figure will be 124pc.
Asian government debt has risen this year from 53pc to just 63pc of GDP – a stunning reversal over just a couple of decades. It used to be the grown-up Western nations that bailed-out recklessly-managed economies of the East.
For there must be a risk these massive Western policy interventions will normalise and intensify, sparking inflation spikes and sovereign debt crises. And while the dollar battles on as the global reserve currency, the heady brew of slow growth, spiralling debt and money-printing surely means other leading Western currencies will lose ground.
China is already a bigger economy than the US on some measures – and set to overtake America as the world’s biggest importer by 2025. The big Eastern nations are the economic superpowers of tomorrow and, increasingly, today.
Last month, after nearly a decade of talks, 13 Asian countries plus Australia and New Zealand signed the Regional Comprehensive Economic Partnership – the world’s largest free trade pact, covering a third of the global economy.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership similarly comprises 11 “Pacific Rim” nations with 13pc of global commerce. If Britain joined, that would make 16pc – more than the EU27. And, unlike Europe, CPTPP nations are primed for super-charged growth.
The EU has always struggled to sign really big trade deals, given the differing agendas of, and conflicts between, member states. That’s why the EU has no trade deal with either the US or China, the two largest economies, despite decades of trying.
The UK, alone, won’t have those problems.
Yet as a top-tier economy, we still have commercial clout. Brexit is all about doing deals and trading more with the 85pc of the world economy beyond the EU – because that’s where the growth is.
Always clear to some of us, this pandemic has made that blindingly obvious.
Follow Liam on Twitter @liamhalligan
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