Asian economies braced for sharp slowdown

Guardian.uk.co

By Susan Fenton, Reuters, Thursday December 11 2008 

HONG KONG, Dec 11 (Reuters) - The outlook for emerging Asian economies has worsened considerably in the past three months with the global downturn hitting exports and consumer spending in the region, a Reuters poll published on Thursday showed. 

Hong Kong, Singapore and New Zealand will struggle to pull out of recession, at least in the first half of next year, while Taiwan looks to be heading for recession and could be joined by Australia. 

"My sense remains that the extraordinary savage downshift in the global economy over recent months may have made recession in Australia unavoidable," said Rory Robertson, interest rate strategist at Macquarie in Sydney. 

Asia ex-Japan overall will continue to expand, but South Korea will see its slowest growth since the 1997/98 Asian financial crisis while powerhouses China and India will have to adjust to sharply slower growth despite recent stimulus packages. 

The global downturn is hitting China's export sector harder than previously thought and threatens to dampen domestic consumption. The poll forecasts economic growth for China in 2009 of just 8 percent, widely regarded as the minimum pace needed to absorb the millions of people entering the work force every year. In 2010 it forecasts an 8.5 percent expansion. 

A shrinking trade surplus will pile the pressure on China with a weak property sector and tepid business outlook dragging down the domestic investment that drove the economy to five straight years of double-digit growth through 2007. 

In India, growth is seen easing to 6.8 percent in 2008/09 and 6.2 percent in 2009/10, the economy's weakest performance since 2002/03. The government is pulling out all the stops to keep growth from braking too sharply, but Sonal Varma, an economist at Nomura in Mumbai, says a $4 billion stimulus package and heavy interest rate cut announced at the weekend were inadequate. 

"We doubt they will be sufficient to quickly reverse slumping growth in investment and exports, and rising second-round effects caused by higher non-performing assets, tightening credit conditions, falling property prices and rising job losses," said Varma. 

WON OVERSOLD 

Job insecurity is rising across the region, particularly in financial centres Hong Kong and Singapore where investment banks are laying off staff as part of global headcount cuts. That in turn will depress consumer spending as people worry about their jobs and expect wages to grow less next year, economists say. 

Indonesia offers some insulation from the global financial storm. It will be Southeast Asia's best performer, with the poll forecasting growth of 4.8 percent next year and 5.6 percent in 2010, thanks to still healthy consumption although a weak currency will curb investment growth. 

The International Monetary Fund forecasts economic growth in emerging Asia ex-China, Australia and New Zealand, of 4.4 percent in 2009, down from an estimated 5.9 percent this year. 

Slowing domestic demand will prompt further interest rate cuts next year as authorities seek to shore up growth, potentially putting more downward pressure on Asian currencies. 

However, the South Korean won is seen as oversold and poised to rebound, after depreciating 30 percent this year, and the Indian rupee , down more than 20 percent this year, should regain ground as gradually improving investor confidence stems capital outflows, analysts say. 

Political turmoil in Thailand will continue to pressure the Thai baht and hurt investment and tourism after hundreds of thousands of foreigners were stranded last week when anti-government protesters took over two Bangkok airports. 

On the bright side, inflation will pose less of a risk to Asia next year as food and oil prices are easing, enabling policymakers to focus on boosting growth. 

In India, oil is the biggest import and plunging oil prices will curb a trade deficit that is expected to top $100 billion for the first time in 2008/09. The poll sees the deficit holding at around $110 billion in 2009/10 -- about a third lower than forecast in a previous poll in September.