Posted on 12 Jan 2016
Managing director and senior global economist Paul Donovan said it is looking at a moderation of Southeast Asian growth this year, as the US and European economies strengthen.
“We’re looking for slower growth across the Southeast Asia region. The rapid rise in consumer debt levels over the last five to six years has taken us to levels of private sector debt that we think cannot continue to increase. This is not just China... this is Korea, Indonesia and Malaysia and, as a result, we believe bank policies will prevent further credit increases coming through,” he said in a teleconference yesterday after presenting the bank’s global economic outlook.
Donovan said Asian exports are expected to see a growth of 2% this year, which is positive but a far slower level growth than in the past. This will however, be consistent with the levels of growth expected in the US and Europe.
He added that there is considerable divergence with the US and Europe growing more strongly this year, while the Asian and Chinese economy is gradually slowing down.
“It’s the credit cycle that helps Europe and America, but it does not help Asia or China.”
“In Asia, we’re looking for deleveraging to continue, for reduced credit growth in Asia and that will reduce economic activity in Asia,” said Donovan.
With slower consumer credit cycle and the need to deleverage after several years of rapid credit growth in Asia, the domestic economic region is Asia is not likely to be strong, he opined.
“With China growing 6.2% this year (estimate), 5.8% next year and we believe China’s long term (growth) is 5% to 5.5% – that will slow down Asian growth overall,” said Donovan.
With the stronger US, eurozone and a weaker Asian economy, in aggregate, global growth is expected to be doing okay this year.
As the euro strengthens against the US dollar, he expects Asian currencies to stabilise to about 5% weaker against the dollar and further weaken against the euro.
“The Fed will raise rates and inflation will rise in the US economy this year but we’re not looking at rate increase to strengthen the dollar any further. The dollar (will) probably lose a bit of value in the international foreign exchange market.”
Meanwhile, Donovan also pointed out that economic data is now being revised more often with bigger changes than usual.
“You cannot trust the initial data releases. The financial markets tend to react to initial data response, not to data revision. But economists and policy makers do their analysis based on revised data. This helps to explain why we’re seeing disagreements between markets on one hand, and central banks and economists on the other hand,” said Donovan.
He also emphasised that economic analysis in the financial markets is not as good today as it was a decade ago.
“There are fewer economists working in markets today and this is a bad thing. There are more bloggers, which is not a good thing either,” Donovan said, adding that the quality of economic analysis has declined as economics becomes more complicated.
“Financial markets will continue to overreact to poor quality economic data and there will be several times this year when markets and economists will move in different directions. There will be long periods of disagreements between economists and markets,” said Donovan.
