Asian Economies Poised to ‘Spring Back’ on Stimulus, HSBC Says
Asian economies are poised to “spring back” from the biggest slowdown in more than a decade as lower interest rates, government stimulus plans and tumbling commodity prices spur domestic demand, HSBC Holdings Plc said.
Financial confidence may be “gradually returning” and cheaper commodities, coupled with fiscal and monetary measures, will boost growth in Asia by at least two percentage points in the next four quarters, HSBC economists Robert Prior-Wandesforde and Frederic Neumann wrote in a report received via e-mail today.
Asian governments have unveiled more than $700 billion in increased spending, tax cuts and cash handouts to limit the impact of what the World Trade Organization forecasts will be a 9 percent plunge in global trade this year. Central banks around the region have also lowered interest rates to help stimulate demand and kick-start local consumer and business spending.
“The worst of the crisis may already have passed, with an aggressive policy stimulus beginning to lift Asia out of its recession over the coming quarters,” the economists said. “We would be very surprised if the green shoots were not in abundance by the middle of this year.”
Some signs of recovery in the region’s biggest economies have already appeared.
Japanese companies said they would increase production in the coming months, after cutting inventories at an unprecedented pace in February. Nissan Motor Co., Japan’s third-largest automaker, says it will raise domestic output in April, while Toyota Motor Corp. plans to ease local production cuts starting in May.
China, Korea
China’s urban fixed-asset investment jumped 26.5 percent in the first two months of 2009 from a year earlier, new bank lending quadrupled in February and vehicle sales rose 25 percent the same month health insurance quotes. In South Korea, industrial production fell less than expected in February from a year earlier, with a drop that was less than half of January’s decline.
“Every time Asian growth has suffered a serious setback in the past it has come back with a vengeance and not because the region has been bailed out by improving demand from the developed world,” the HSBC economists said. “Contrary to conventional wisdom, Asia’s post-crisis recovery was led by consumer demand which then triggered an improvement in the regional trade cycle.”
Risks remain as companies continue to cut jobs amid waning demand, Prior-Wandesforde and Neumann said.
Exports by developing Asian economies may shrink 10.3 percent this year, after growing 14.7 percent in 2008, the Asian Development Bank said last week. Overseas shipments account for about 32 percent of Asia’s gross domestic product, according to the World Bank.
Deflation Threat
“Economic growth has already fallen to levels consistent with a meaningful reduction in jobs in Asia, which in turn could provide a significant dampener on consumer spending,” HSBC said.
Deflation, or a persistent drop in prices due to excess capacity and a prolonged weakness in domestic demand, is also a threat to the region’s economies, the economists said.
“By this we do not mean temporary price falls relating mainly to the collapse in commodity prices,” they said. “If we are right about the prospects for Asian domestic demand, then the chances of bad deflation will be much reduced.”
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