Asian economies seen to slow but will avoid slump

SINGAPORE—Asia’s economic growth will get worse before it gets better,  with China and India seen expanding this year at their slowest pace since the tail-end of the global financial crisis in 2009, prompting central banks to remain accommodative, a Reuters poll showed.

Surveys of more than 250 economists across Asia, excluding Japan, found significant downgrades to growth estimates when compared with the previous poll conducted in October. But economists also thought Asia’s policymakers would step in to stave off any sharp declines, with interest rate cuts expected in 2012 in India, Australia, Indonesia, Malaysia, the Philippines, Thailand and Vietnam.

“We remain relatively optimistic that Asia will avoid a major slump this year,” said Frederic Neumann, a Hong Kong-based Asia economist with HSBC.

“The first quarter is undoubtedly going to be challenging.” Analysts have steadily chipped away at their 2012 growth estimates for China over the last five quarterly polls dating back to January 2011. The consensus view showed China’s growth slipping to 8.4 percent in 2012, which would be the slowest growth in a decade.

Out of 34 economists polled on China, five thought growth would dip below 8 percent this year, a level once deemed unthinkable. In the poll conducted three months ago, not a single economist predicted China would breach the 8-percent mark.

While Asia is clearly not immune to the global economic slowdown and financial market turmoil, the consensus view indicated that the current slowdown might be short-lived and the region will recover toward the end of the year.

“The worst seems to have passed and this looks like a mid-cycle slowdown,” said Wai Ho Leong, senior regional economist at Barclays Capital. “This is a moderation rather than a slump.”

Asia’s fate is closely tied to China’s because it has become the top export destination for many of its neighbors, so a sharper slowdown there would have far-reaching repercussions.

Beijing has said it intends to “fine-tune” its economic policy, which suggests interest rate cuts are not on the cards.

The poll showed the People’s Bank of China holding the benchmark rate steady through the mid-2013 forecast horizon.

China will probably seek to spur lending by cutting the amount of cash that banks must hold as reserves. The poll showed economists expected the required reserve ratio to fall to 19 percent by the end of 2012, from its current level of 21 percent.

“If things were to sour suddenly, China has some fiscal room to maneuver in, so we will see more fiscal stimulus,” Leong added.

In India, which is feeling the bite of 13 successive rate hikes coupled with the government’s inability to pass legislation to encourage foreign investment, growth estimates have come down sharply.—Reuters