International | Aug 04 2009
By Chris Shaw
Hong Kong and Singapore have been hit very hard by the global financial crisis, reflecting the open nature of both Asian economies in the view of ANZ Bank, but more recent data indicate some improvement in respective rates of economic momentum.
The bank suggests this partly reflects a normalisation of global trade activity, while it is also being helped by signs of revival in the respective financial and property markets plus stimulus measures introduced in both economies. On the minus side, weak global growth and reduced trade flows remain issues for recovery in the two economies, so the bank forecasts sub-par rates of growth until external demand improves.
At the front end of the downturn, both Hong Kong and Singapore were among the first to fall and experienced sharp falls relative to the rest of Asia as OECD import demand slumped and trade financing fell, driving down Hong Kong exports by almost 15% in quarter on quarter terms in the March quarter this year and Singapore’s by more than 10% in both the March quarter this year and December quarter last year.
As trade weakened there was a spillover impact on consumption and investment, both dropping sharply in recent months. What didn’t weaken to nearly the same extent was the banking sector, ANZ putting this down to the fact both money centres managed to largely avoid significant exposure to toxic assets. As a result, banks in both countries remain well capitalised and non-performing loans, while rising, remain low.
Given the extent of the global recession, both economies have seen the introduction of aggressive monetary measures and the bank suggests this has helped stabilise local money markets, aided by the fact both governments have large fiscal reserves and so could afford to announce sizable stimulus packages.
Packages in both nations have centred on retaining jobs, supporting small and medium-sized businesses and offering direct transfers to households. While the overall GDP impact may be smaller than elsewhere, given the open nature of the two economies, the bank notes the measures have been important in welfare terms.
Together the packages and some normalisation of the global economy has helped economic momentum in both economies turn more positive in the June quarter, with GDP growth expected for both for the period as both stock and property market activity levels have picked up.
More specific factors have also contributed, Hong Kong being a beneficiary of the Chinese fiscal stimulus package and Singapore receiving a boost to its pharmaeceutical sector from the swine flu outbreak. ANZ suggests both of these factors could have only transitory benefits as swine flue doesn’t appear as bad as first seemed and there is risk of Chinese funds being withdrawn from Hong Kong.
This means while there are signs of recovery, the overall level of economic recovery remains below the levels seen in 2007 and in the bank’s view this is evidence there needs to be an improvement in external demand. For this to occur discretionary consumption in both Europe and the US must increase, but any improvement is likely to be modest according to International Monetary Fund forecasts.
As a result, ANZ expects both Hong Kong and Singapore will experience below potential growth in coming periods, with quarterly growth expected to be 1% through to 2010 for Hong Kong and 1.3% for Singapore in quarter-on-quarter terms, well below the 1.7-1.8% recorded from 2004 to 2007.
Elsewhere in Asia, the bank has adjusted its forecasts, lifting its growth expectations in China to 8% for 2009 given the stimulus package appears to be ahead of schedule in terms of its impact on the economy. With expansionary policies expected to continue until the recovery is more secure and foreign demand picks up, the bank sees risk to the upside for its revised growth figure.
In India industrial output is showing indications of turning around as domestic demand strengthens, but uncertainty over the level of rainfall in the current monsoon season could act as a limiter on growth while also adding to inflationary pressures. Even allowing for this, ANZ expects growth for FY09/10 to come in above 6.0%.
Domestic demand in Indonesia remains solid but external demand is still weak, though with inflation still trending lower, ANZ sees the economy as outperforming the region by posting solid economic growth for the full year. Malaysia is similarly suffering from weak external demand and this is pushing back the timing for the bottom of the cycle. With risks on the downside the bank sees a drawn-out recovery, with growth most likely to come from external stimulus measures.
It is a similar outlook in the Philippines as while domestic demand is solid, external trade is not improving and ANZ suggests this will mean below trend growth in the second half of 2009. Weak external demand should also limit the strength of any recovery in Korea in the bank’s view, though it has lifted its growth forecasts to a contraction of 1.2% this year followed by growth of 3.3% in 2010.
Exports are showing signs of a possible rebound in Taiwan and the falls in commercial sales and industrial production are also moderating so ANZ has lifted its growth forecast for 2009 to a contraction of 4.5%, up from an anticipated fall of 5.3% previously. Growth in Thailand is also forecast to be negative this year, unless exports improve in coming months. ANZ is forecasting a contraction of 2-3% in GDP for the year.
In Vietman the bank notes inflationary pressures are rising at the same time as domestic demand and confidence are improving, but the former is likely to result in some measures being introduced to cool the rate of credit expansion. While growth should continue at around 4.5% for the full year the bank notes there are a number of vulnerabilities that could impact on the final outcome.