Its economies deemed to be sustained by resilient domestic demand
PETALING JAYA: Asia's economies
will continue to outperform amid the global economic weakness as it will be
sustained by its resilient domestic demand, according to CIMB Investment Bank
Bhd.
“Asia is a place where growth
will still be there despite the global economic slowdown,” CIMB Investment Bank
regional head of economics Lee Heng Guie said during the Economic/FX Update
session of the CIMB Asean SME Forum 2012.
Noting that Asia was now more
resilient to external risks than they were during the onslaught of the 2008/09
global financial crisis, Lee said, “We think policymakers in the region are
more prepared to deal with the potential slowdown in their economies as well as
the risk of a sharp capital reversal.”
He pointed out that policymakers
in the region still had some fiscal room to pump prime their economies in the
worst-case scenario, although the fiscal capability varied across countries in
the region.
In addition, Lee said: “Asia is
becoming a prominent source of foreign direct investment.” This, he said, would
give rise to bigger intra-regional investment flow.
That Asia's exports and
industrial output had not shown signs of mending, Lee said, showed that the
region had not completely decoupled from the western developed economies. He
noted that many Asian economies remained highly correlated to the Group of
Three, or G3, which comprised the United States, Europe and Japan.
During his presentation, Lee
highlighted five major risks, which he categorised as the five Cs, that would
continue to cloud the global economic outlook. These are the ongoing crisis of
sovereign debt in Europe; the fiscal cliff of the US economy; uncertainties in
China's economy; capital flow volatility; the resurrection of food inflation
risks that would impact consumer prices and spending.
“Permanent solutions to the
eurozone debt crisis still appear far off,” Lee explained, while noting that
the US fiscal cliff could result in budget cuts that would slash around 3% to
4% of the US gross domestic product.
“We expect global growth to
remain moderate until there are convincing signs of turnaround in the eurozone
and the United States,” Lee said.
As for the risk of China's
slowdown on other Asian economies, Lee said, “If China catches a cold, Asian
economies will catch a cold.”
On a positive note, he said
although China had shown signs of slowing down, the country's economy would
still expand at a rate that would remain supportive of Asian growth. The risk
of a hard landing, Lee said, would be minimal as he believed China still had
“ammunition” to sustain its economy.
Lee, however, remained concerned
about the potential of capital flow volatility in the region, caused by higher
global liquidity, especially after US policymakers decided to roll out the
third round of quantitative easing (QE3).
He pointed out that capital flow
reversals would cause asset prices volatility in Asia.
Lee noted that food inflation
could rear its ugly head in the months to come due to severe weather conditions
that had affected crop production. He believed global commodity prices would
continue to trend upwards on the back of potential dollar weakness due to QE3.
“Policymakers have to prepare for
a higher inflation outlook; there is a need to balance between growth and
inflation risks in the medium term,” Lee added.
Meanwhile, Lee said Malaysia
would likely achieve its targeted GDP growth rate of at least 5% this year. The
scenario would likely be more challenging next year, but CIMB's growth
projection for Malaysia at present would still be at a strong 5.5% for 2013.
In another development, CIMB
Investment Bank regional rates/fx strategist Sureh Kumar Ramanathan, who held a
contrarian view, said the outlook for the US dollar was “quite good”.
“I'm bullish about the US dollar;
I think we've been bearish for far too long about the US currency,” he said
during the Foreign Exchange/Currency Update session of the forum.
“I'm bearish about Asia,” he
noted.
On QE3, Suresh said the market
had been reading it wrongly. He explained that the so-called QE3, which
involved the purchase of US$40bil of mortgage-backed securities every month
indefinitely, was a targeted policy to revive the housing market.
“There is no free flow of money,”
he argued, adding that he therefore did not think QE3 would result in dollar
weakness.
CECILIA KOK
Business & Investment Opportunities
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