News Room - Business/Economics

Posted on 21 May 2009

Economy yet to hit bottom

The global economy has not hit bottom despite signs of expansion of China’s Purchasing Managers’ Index (PMI) and a slower pace of decline in the US’ PMI because the balance-sheet problems affecting banks have not really had an impact on the real economy.

 

Hong Kong University honorary professor Edward Chen said although stock markets had been rising in the past two months and unemployment figures had stabilised in the US recently, the meltdown of the financial industry, which reached its peak last September, had not been felt in the real economy.

 

He said the stock markets would probably see a correction in the next few weeks as investors adjusted their expectations over an earlier-than-predicted turnaround for the global economy.

Edward Chen: 'When China gains, a great part of its earnigs will go towards spending in Asia'.

 

“I’m optimistic of a recovery next year,” Chen said at the sidelines of the Asian Economic Conference 2009 yesterday. He said recovery would take place only in the second quarter of 2010.

 

However, the global economic outlook would depend largely on China and the US, he said, adding that China’s sustainable and continued growth would not only be crucial for global recovery but also help boost Asia as a globally important economic region in the future.

 

“When China gains, a great part of its earnings will go towards spending in Asia,” Chen said.

 

He said China would likely have a leadership role in any Asian effort to integrate their economies.

 

Meanwhile, EFD – Global Consulting Network director Augusto Lopez-Claros said confidence could still take a tumble due to more writedowns in banks’ balance sheets that had so far not been recognised.

 

To date, there has been US$1.45 trillion in credit losses with US$48.3bil in credit writedowns in Asia.

 

Lopez-Claros said while confidence was coming back gradually through a combination of fiscal stimulus and lower interest rates, “we can’t be really sure that this is not just a blip.”

 

“Banks are crossing their fingers that assets they still have will recover in the stock market rally but remember that in the Great Depression there were several rallies that eventually lost steam before a real recovery began,” he said.