International | Dec 02 2008
By Chris Shaw
As the global growth outlook continues to fade, ANZ Banking Group has been forced to revise down its GDP forecasts for the emerging Asia region. The bank takes the view that risks remain to the downside until the US housing market stabilises and banks clean up their balance sheets, both of which will help to restore investor confidence.
Until then, the fact most advanced economies are now in or near to entering recession is driving down the region’s outlook and this weakness is expected to run through 2009. To reflect this, the bank’s chief economist for Asia, Paul Gruenwald, expects growth for the region to slow from the more than 9% achieved in 2007 to around 6.25% next year. However, the pace of the decline won’t be consistent throughout the region.
Gruenwald has a split-growth theory and expects the gap between the growth outlooks for North-East and South-East Asian will continue to widen as the north-east slows much more sharply. Much of this can be explained by the contribution of net exports to GDP growth, as in Gruenwald’s view, the South-East Asian region is better placed to deal with a trade-related slowdown in the advanced economies given these countries have shown more signs of recovery in domestic demand.
As a result, the changes to the bank’s forecasts are more seizable in North-East Asia, especially as both Hong Kong and Singapore are already technically in recession. With GDP in Taiwan down in year-on-year terms as well, Gruenwald expects growth in this area to fall by an average of 4.5% for the period 2007 to 2009.
In contrast, the South-East region is faring much better and the Indonesian economy to date has been relatively unaffected by the slowing in global growth. Indonesia continues to deliver GDP growth of more than 6% annually. Similarly, the Philippines economy is also continuing to generate solid performance.
In terms of actual forecasts, Gruenwald is forecasting GDP growth in China of 9.7% this year and 8.0% in 2009. In Hong Kong he expects 3.0% and 2.5% respectively and in India, 7.9% and 7.0%.
Sharp declines are expected in Korea and Taiwan, with the former expected growth to slow from 4.1% this year to just 0.9% in 2009, while for the latter he expects growth to slow from an expected 1.8% this year to just 0.4% in 2009. In contrast, growth in countries such as the Philippines, Vietnam and Indonesia is expected to remain reasonably close to current levels.
As Gruenwald notes, these assumptions are based on expectations of further easing in policy by authorities in the various economies. The recent Chinese stimulus package is an example, as he sees it as well designed to maintain growth at close to 8.0%, which he estimates is the comfort level for authorities.
But a recovery in growth appears unlikely until there are clear signs of a stabilising in advanced economies and the global financial system. If this doesn’t occur in a timely manner there is a good chance of little if any recovery in 2009, in Gruenwald’s view.
What this means for foreign exchange rates, according to the bank, is there will be an ongoing attempt to pick the bottom of the downturn through the course of next year. The data also suggest the US housing market and China’s growth outlook remain the keys to any bottom being established.
As well, there needs to be signs the volatility in markets is easing, as only then will investor confidence return in any quantity. By the end of next year the bank expects the aggressive fiscal and monetary policies introduced recently will begin to deliver some pay-off.
In terms of specific currencies, the bank expects the Chinese renminbi to continue to perform well given that country’s authorities place great emphasis on currency stability. The Korean won, Indonesian rupiah and Indian rupee could also outperform given their poor performance this year, as countries with current account deficits or small surpluses have been punished the most.
