Full text of the inaugural address given by Ravi Menon, Managing Director, Monetary Authority of Singapore at the opening of the 3rd Annual World Islamic Banking Conference: Asia Summit, Grant Hyatt Singapore on 5 June 2012.
Dr Ahmad Mohamed Ali Al-Madani, President, Islamic Development Bank, Your Excellencies, distinguished guests, ladies and gentlemen, good morning. And to all our foreign guests, a warm welcome to Singapore.
An Increasingly Difficult Conjuncture
We are meeting here for the 3rd Annual World Islamic Banking Conference Asia Summit, at a time of increasing stress in the global economy and financial system.
The effects of monetary stimulus, which had helped to support the economy and prevent a full-blown financial crisis, are now levelling off in both the Eurozone and the US.
The labour market remains a significant drag on growth in the advanced economies. Unemployment has hit new highs in the Eurozone while employment and production numbers in the US are showing signs of weakness.
The story of a two-speed global economy is coming under strain, with demand weakening across emerging Asia. The moderation in China's economic growth appears to be somewhat sharper than expected. India is undergoing an even more pronounced and broad-based slowdown.
But the key risk that has increased in recent months and poses the biggest threat to global economic prospects is the situation in Europe.
Greece is preparing for a historic election that may well decide its future in the Eurozone.
Spain is experiencing severe strains in its banking system against a backdrop of a sharp reduction in GDP, high unemployment, and a deteriorating real estate sector.
Italy and Spain are facing higher sovereign borrowing costs that threaten fiscal sustainability.
To be fair, Eurozone governments have been taking extraordinary measures to help stabilise the situation, reduce fiscal deficits, and restore growth. But they have reached a turning point where bolder, decisive actions will be needed to reverse the tide. The next few weeks and months will be critical. Islamic Finance: Challenges to Overcome
Let me turn now to the subject of our conference. Islamic finance has shown remarkable resilience during the last five years – perhaps the most challenging economic environment in the post-war era. The industry has grown by an estimated 20% annually in the last five years to reach US$1.3 trillion in total assets in 2011. Islamic banks have grown both in number and in scope.
But the sustained growth of Islamic finance is in no way guaranteed. For Islamic finance to continue thriving, the industry has to overcome a few key challenges. But in every challenge, there is also opportunity. Let me highlight three of them this morning.
Islamic Finance in the Era of Deleveraging
The clear and present danger to all financial activity, including Islamic finance, is the risk of contagion from an escalation of the Eurozone crisis. Islamic finance is closely intertwined with underlying economic activity and will be affected by the impact of slower global growth. Contagion from the Eurozone has already curtailed economic growth and capital inflows to many emerging economies where Islamic finance has taken root. Potential spillovers from an escalation of the Eurozone crisis could lower output in the Middle East and North Africa region by about 3¼ percent relative to baseline, the largest spillover effect for any region outside Europe.
But Islamic finance has a window of opportunity in the current climate of deleveraging in the global financial system. With its strict prohibition on excessive leverage, Islamic finance has been spared the worst of the financi
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