Singapore: Asia’s long depressed investment has come to life in step with reviving private consumption and the region’s governments are set to keep the momentum by boosting spending to cope with a global slowdown.
Rising investment in Asia offers badly needed relief for the world economy after a credit crisis in the US pushed the world’s biggest consumer market into a recession, casting a pall over other regions.
Preferred destination: Construction cranes tower above the site of the City of Dreams in Macau, China. Investment rate in the country—the highest in Asia—climbed to 44.2% in 2007 from 42.5% in 2006.
Analysts say companies and governments in Asia both face pressing investment needs and got the cash to spend after years of robust, export-driven growth boosted balance sheets and fiscal positions.
Capacity constraints should prove a strong incentive for firms to invest, while creaking infrastructure, urgent development needs and a looming slu-mp in global demand for Asian exports prompt policymakers to loosen the purse strings.
“Despite the global credit jitters, the environment for the further strengthening of investment in Asian economies this year remains favourable,” said Frederic Neumann, senior economist at HSBC Holdings Plc. in Hong Kong.
“Capacity utilization rates across the region are also tight after years of under-investment. This, too, should prove supportive for capital expenditure this year in Asia,” he said.
Analysts also say that unlike their?European?or?US?peers, the region’s banks have little exposure to the troubled US subprime mortgage loan market.
The investment rate—investment as a proportion of gross domestic product (GDP)—has been rising steadily in most Asian countries since 2004, after a long investment drought that followed the 1997-98 financial crisis.
China, India and Vietnam led the pack as private investment rose, followed by Malaysia and Singapore, according to JPMorgan Chase and Co.
Investment rate in China— the highest in Asia—climbed to 44.2% in 2007 from 42.5% in 2006, despite Beijing’s efforts to curb fixed-asset spending, according to JPMorgan.
In India, the investment rate climbed to 36.5% in 2007 from 34.4% in 2006, while that of Vietnam rose to 37.5% in 2007 from 35.7% a year ago.
Investment rates in China, India and Vietnam have surpassed their pre-crisis levels, but spending in other parts of Asia has yet to return to its peaks from mid-1990s.
For now, inflation is the main worry for Asian leaders, making them reluctant to loosen policy, but mounting risks to growth will gradually take the centre stage, with a global slowdown expected to bite sta-rting from the second quarter.
In its semi-annual report published last week, the World Bank predicted that economic growth in East Asia, excluding Japan, would slow to 7.3% this year from 8.7% in 2007.
The bank cautioned that business investment in Asia may taper off in the longer term if the credit crisis deepens, but any slowdown would be smaller than 2001, when Asia took a hit from the bursting of the tech bubble.
The difference is that many Asian nations now have much more wiggle room on fiscal po-licy than they had in the past.
“Many of the East Asian countries do have a fairly large fiscal space. They have the capacity to introduce expansionary policies in the event of that growth rates decline to levels which are considered uncomfortable,” said Vikram Nehru, the bank’s chief economist for East Asia and Pacific.
Public debt levels in Asia have fallen to their lowest since 2000 due to rising revenues, according to the International Monetary Fund (IMF) and several South-East Asian nations have already taken advantage of that.
Malaysia is boosting spending through a $54 billion (Rs2.2 trillion) five-year development plan and other multi-billion dollar projects.
In Thailand, Prime Minister Samak Sundaravej’s new government has unveiled stimulus packages, including a multi-billion-dollar expansion of Bangkok’s mass transit systems over the next few years and $635 million handouts to villages. Thai officials have said that state investment is likely to surge 10% in 2008 after a 4% rise last year, while private investment could rise 9.7% this year compared with 0.5% in 2007.
Growing investment and consumption in Asia will help boost the region’s economic clout and underpin the global economy at a time when the US economy is reeling from the credit crisis, according to analysts.