Hong Kong: Singapore and Taiwan will be emerging Asia’s most battered economies this year as the global downturn spreads across the continent, while China will just miss its targeted 8% growth rate, a Reuters poll shows.
The poll forecasts gross domestic product in both Singapore and Taiwan will shrink 4.9% this year - Singapore’s worst year ever and Taiwan’s weakest performance since data was first published in the 1950s - as exports plunge and in turn depress local consumer confidence.
Economists foresee a modest rebound in Asia next year but that assumes the US economy pulls out of recession late this year, they say.
The outlook across emerging Asia has deteriorated sharply since late last year as weakening consumption in advanced economies - Asia’s biggest markets - has slashed demand for Asian goods, sending exports into freefall.
A similar poll three months ago forecast only a 1.1% contraction in Singapore this year while Taiwan was still on course for a 0.7% expansion.
Both export-reliant economies are now in recession and are unlikely to recover until 2010 when the poll estimates Singapore will see a 3.9 percent increase in gross domestic product and Taiwan’s economy will expand by 3.4 percent.
Sebastien Barbe, an economist at Calyon, is worried about South Korea’s economy, which is forecast to shrink 2.5 percent this year.
“Korea is one of the most fragile economies in the region,” said Barbe. “There is a lot of foreign debt, which is a worry for the banking system, and its exports are plunging. So that’s two weaknesses at the same time.”
China’s unexpectedly sharp slowdown in the wake of the downturn is hurting economies by depressing exports with Asia. The poll forecast China will manage only 7.8% growth this year, below its target of 8% seen as the minimum required to create enough jobs to ward off social tensions.
Growth will be the slowest in 10 years although the Chinese economy will see a modest recovery in 2010 when trade flows stabilise, the poll suggests.
China’s slowdown is helping depress Hong Kong’s economy, which is set to contract 3% this year, its worst year since 1998 at the height of the Asian financial crisis.
Slumping exports will aggravate trade imbalances and Australia, India, Hong Kong and the Philippines are all set to post trade deficits for 2009 and 2010, according to the poll.
India, Indonesia and the Philippines will be the only emerging Asian economies to experience economic growth apart from China this year, but they will have to adjust to much lower growth than in previous years.
Growth in India is forecast to slip to 5.7% for its financial year ending March 2010, after averaging 8.8% annually over the past five years. Large rate cuts, increased government spending and duty cuts should help growth recover in 2010/11 but only to 7.1%.
Inflation at least is receding across Asia, giving central banks more leeway to cut rates to stimulate economic activity. China, Taiwan and Thailand face slight deflation this year but inflation should return as GDP picks up in 2010.
Asian governments have announced big fiscal stimulus packages in recent months but they will take time to filter through to the broader economy, analysts said.
While the poll expects Asia;s economies to gather pace in 2010 as demand from Europe and the United States slowly improves and fiscal stimulus takes effect, analysts said there was still downside risk to their forecasts.
“These numbers are based on the assumption that things would start picking up in the second half (of 2009) which can hardly be guaranteed,” said David Cohen, an economist at Action Economics in Singapore. “Next year will just continue the pick-up trajectory, but certainly the grim stories around the world make you nervous.”
Further afield, the end of the commodity boom puts Australia on course for its first recession in almost two decades, with GDP expected to shrink 0.6% in the financial year ending June 2009, and expand only 1.3% the following year.
In neighbouring New Zealand an export slump is exacerbating a recession that began early last year. The poll forecasts GDP will contract 1.9% in 2009 but rebound 2.4% in 2010.