Asia set to see V-shaped growth in '12

Business Times: Tue, Jan 10

THIS year will again be a year of two halves for Asian economies, which ought to prepare for the V-shaped growth path they are set to take in 2012, says Nomura's chief economist for Asia ex-Japan, Robert Subbaraman. The region's growth is expected to moderate from 7.5 per cent last year to 6.6 per cent this year, but quarterly growth is likely to slacken in the first half before picking up again in the second, the Hong Kong- based economist said. Europe remains the largest risk in Nomura's base scenario, and the key worry is that there may be a deeper plunge to Asia's V-shaped growth profile should its slowdown be exacerbated by a disorderly break-up of the eurozone, Mr Subbaraman told BT while in town yesterday. The US economy is unlikely to keep up the pace of improvement seen in recent data releases, and will experience a gradual recovery leading to 'okay' growth of 2.3 per cent this year, he said. This means the one per cent contraction Nomura expects from the eurozone this year and China's expected slowdown from 9.2 per cent last year to 7.9 per cent this year will weigh heavily on Asia. The common wisdom is that Asia's exports to itself and China are overstated because they are re-exported to developed economies. However, he thinks this is becoming outdated as domestic demand is gaining influence in China's growth. In fact, more than half of China's total imports are now consumed domestically rather than processed and assembled for re-export dependent on G3 and other demand, he noted. The 'silver lining' for Asia, Mr Subbaraman said, is that most governments still have sufficient policy pace to stage a rebound. 'Asia is like a yo-yo; the harder its economies are hit, the bigger and stronger the bounce-back,' he said. Nomura expects substantial fiscal stimulus to be rolled out across Asia this year, and in some cases, in larger doses ahead of elections. But what is good for one economy may not be so for another. Mr Subbaraman points out that while strong stimulus in South Korea could boost GDP growth by a percentage point, in Malaysia - where an even stronger fiscal push is possible following yesterday's acquittal of Opposition leader Anwar Ibrahim - a large fiscal stimulus may not be ideal given that public debt stands at over 50 per cent of GDP. Monetary policy is also expected to be loosened with interest rate cuts across Asia as inflation eases. Though inflation has turned upwards for some economies - Taiwan's December CPI being the most recent example - Mr Subbaraman is confident that inflation's downward trend will be clear once the Chinese New Year effect on prices wears off. He said that the effect of weakening currencies is unlikely to be passed on to consumers in higher prices in a season of slowed demand. Falling commodity prices and the onset of high base effects from last year further underline the case for lower inflation this year. But policymakers would do well not to take their eyes off the inflation ball, as medium-term risks of a situation similar to the Asian economies' overheating in late 2009 and 2010 remain, Mr Subbaraman said. Nomura also expects the US to roll out QE3 by this quarter, which may send capital inflows Asia's way given the region's relatively more attractive growth prospects.   Source: Business Times