Singapore: Asia’s interest rate reductions and fiscal stimulus packages unveiled in recent months may help propel a recovery in demand and economic activity later this year, economists said.
The region’s central banks have room to cut rates further as policymakers try to boost domestic consumption and combat a deepening global slowdown, said HSBC Group Plc.’s Robert Prior-Wandesforde and Société Générale SA’s Glenn Maguire. The existing measures should at least keep growth from slumping further in the second half, they said.
Asia’s export-driven economies are slowing as demand for their products diminishes amid recessions in the US, Japan and Europe. The region’s governments have pledged at least $670 billion (Rs32.63 trillion now) in public spending over the next five years, while central banks from South Korea to India are cutting interest rates to stimulate demand.
“There’s still scope for deeper monetary easing in Asia from here,” Maguire, Société Générale’s chief Asia-Pacific economist in Hong Kong, said. “Fiscal policy measures will start to take effect in the second half of 2009 and will provide a floor under Asian economic growth.”
The World Bank last month predicted international trade will shrink in 2009 for the first time in at least 25 years. Exports account for about 32% of Asia’s gross domestic product, according to the World Bank.
The central banks of Indonesia, South Korea and Taiwan cut their benchmark interest rates last week, and India on 2 January lowered borrowing costs for the fourth time since late October.
Declining commodity prices will help slow inflation and boost incomes, said Prior-Wandesforde, HSBC’s senior Asia economist in Singapore. That will encourage “further aggressive interest rate action”, he said.
India’s government announced two stimulus packages within a month that included plans to inject capital into banks and allow overseas investors to double purchases of debt. China in November unveiled a 4 trillion yuan (Rs29.36 trillion now) economic stimulus plan, and South Korea has pledged about $30 billion in extra spending, corporate tax breaks and income-tax reductions.
The government in Malaysia on 4 November unveiled public projects valued at 7 billion ringgit (Rs9,805 crore).
These are “highly synchronized and highly powerful policies that are coming through within Asia,” Prior-Wandesforde said. “There’s a good chance it’s going to work reasonably well and that in turn will be a key factor in driving the likely turnaround in growth in the second half of the year and in 2010.”