Asian economies to struggle on weak export demand

Monday, 28 July 2014 00:00 - - {{hitsCtrl.values.hits}}

Asian growth outlook dims with feeble China, India recovery
Weak exports to euro zone, Asia to thwart growth
High inflation seen preventing looser policy across Asia
Thai growth prospects cut most due to political turmoil
Base rate cut seen in South Korea in Q3

BANGALORE, (Reuters): The outlook for emerging Asia has dimmed further this year on weak demand for exports, although growth in India is expected to accelerate into 2015 even as China is held back in part by a slowing property market, Reuters polls showed. China and India have been stung by the West’s slow recovery from the great recession and, adding to the problem; both countries have struggled to implement reforms at home to boost productivity and consumer spending. But signs of stabilisation have emerged in China, the world’s second-largest economy, which grew by a slightly-faster-than-expected annual 7.5% in April-June, thanks to a raft of government stimulus measures. Chinese manufacturing expanded at its fastest pace in 18 months in July, according to a preliminary HSBC survey of purchasing managers on Thursday.

However, economists in the Reuters survey conducted from 17-23 July were wary about pushing growth forecasts much higher. They now expect the Chinese economy to grow 7.4% in 2014, a modest increase from the 7.3% predicted in April, according to 44 respondents. They expect growth to slow to 7.2% next year. That underlines the limited effect that government stimulus measures have had so far and reflects worries that a property market slump could worsen and hurt the broader economy. Chinese exports rose 7.2% in June from a year before, lower than expected. They were up only about 0.9% in the first half compared with a year earlier, compared with year-on-year growth of close to 10 percent in January to June 2013. “The mini-stimulus measures have helped to support growth in the second quarter but we see some downside risks stemming from a property market correction due to oversupply and uncertain external demand,” said Jian Chang, an economist at Barclays in Hong Kong. Economists in the poll also cut 2014 growth forecasts for India, Indonesia, the Philippines, South Korea and Thailand while Australia and Malaysia were predicted to expand at a slightly faster pace. The forecast for Thailand was cut the most after months of political turmoil that led to a military coup in May, as well as the continuing weakness of exports. Its economy is expected to grow by just 1.8% in 2014, down from the 2.6% forecast in April. The Thai economy is then seen expanding 4% next year. Most other economies are also expected to perform slightly better in 2015. For India, economists pencilled in 5.3% growth for the current fiscal year, down from the 5.5% seen in April. For now, they fail to share the enthusiasm of investors for the new government of Prime Minister Narendra Modi. His landslide election win two months ago has helped send Mumbai’s Sensex index up more than 24% this year. Most Asian countries have begun increasing exports to the United States as its economy has rebounded following a dismal start to 2014 but orders to the euro zone, China and regional trade partners have stagnated or slipped. “Despite the pick-up in exports to the US, emerging market shipments excluding those from China have yet to rise broadly,” said David Hensley, an economist at JP Morgan. High inflation in the region has limited the scope for any easing in monetary policy and almost all major central banks in the region are likely to hold interest rates steady until the end of next year, resisting pressure to stimulate demand. Only the Bank of Korea is expected to cut its base rate, by 25 basis points to 2.25% sometime in the third quarter. In contrast, both the Federal Reserve and the Bank of England are expected to raise interest rates by the middle of next year, although the absence of wage inflation there could delay any move. The outlook for Asia was, however, better than for Latin American economies, where Brazil is seen managing just 1.1% growth this year.