SINGAPORE - Slower growth in the advanced economies means that demand for Asia's exports will not be as robust as before the global financial crisis, Singapore's central bank has warned.
The region's fortunes will "hinge on the success of structural reforms to lift productivity growth and rebalance demand towards domestic sources", with China and India already taking steps in this direction, the Monetary Authority of Singapore (MAS) said in its biannual Macroeconomic Review released on Tuesday.
Still, the outlook for the Asean economies remains positive in view of their intrinsic strengths, including a large labour pool, abundant natural resources and integration into global production and trade networks.
"As the region's wealth and incomes rise, the Asian consumer will increasingly become an important driver of global growth."
The economic outlook for the rest of the world is less rosy. The global economy is largely relying on the United States to support its growth - a situation likely to continue well into next year, the MAS said.
The US has made the most progress in recovering from the global financial crisis, while other economic behemoths like Europe, Japan China continue to grapple with structural reforms and lacklustre growth.
This means industries in Singapore catering to final demand in the US are likely to perform better than those tied to the euro zone and China, Singapore's central bank said.
Growth in the euro zone has been hampered by weak credit expansion and poor business sentiment. Recent declines in inflation and growth have also intensified fears that the monetary union could be stuck in a prolonged period of sub-par growth and low inflation.
In China, slackening domestic spending and a property market downturn are posing short term risks to the rest of Asia. Still, the MAS said there are reasons to be "cautiously optimistic" about the country's longer term prospects - it has embarked on structural reforms that, if successful, would result in stronger productivity gains.
Although the immediate outlook for the US appears relatively sunny, the MAS said concerns regarding the country's longer-term outlook remain.
The labour force participation rate, which has been declining since the early 2000s, has fallen at a faster pace after the financial crisis. The risk of long term structural unemployment in the labour market has also risen, while future gains productivity may be restrained by a slower rate of technological innovation.
These factors would serve to lower the US' potential growth rate, said the MAS.