Finance news

Asia’s export-dependent nations may see their recoveries falter in the second half of the year as overseas demand remains subdued, economists said.

“Recovery in Asia does not look especially durable,” said Michael Taylor, a senior economist at Lombard Street Research Ltd. in London. “Sustainable Asian growth still depends on a global recovery lifting demand for exports.”

Improvements in Asia’s economic performance in the second quarter were largely due to “front-loaded” fiscal stimulus that cannot be sustained, Taylor said. The Organization for Economic Cooperation and Development expects the world’s most- industrialized nations, which buy the bulk of Asia’s exports, to shrink 4.1 percent this year and grow only 0.7 percent in 2010.

“The shape of the recovery over the next 12 months will vary across the region,” said Kevin Grice, a senior international economist at Capital Economics Ltd. in London. “For the most trade-dependent economies, the recent spurt in growth will fade in the second half of the year as demand from the rest of the world remains weak.”

China’s economy grew 7.9 percent in the second quarter from a year earlier, accelerating for the first time in more than two years, after the government implemented a 4 trillion-yuan ($585 billion) stimulus plan.

“Question marks hang over the medium-term sustainability of Chinese expansion,” said Lombard Street’s Taylor. “For the pessimists amongst you, what China is witnessing is an unsustainable inventory and investment surge that will leave the domestic banking system saddled with bad debts and Chinese industry with wasted capacity.”

‘As Good As It Gets’

Singapore’s gross domestic product expanded an annualized 20.4 percent last quarter from the previous three months, the first growth in a year, and figures due for release on July 24 are expected by economists to show South Korea’s economy grew 2.2 percent in the same period, the most since 2003.

South Korea’s second-quarter growth may be “as good as it gets for some time,” said Grice from Capital Economics affordable car insurance. “The Korean upswing this time around will likely be far more subdued than was the case following the late 1990s Asian financial crisis” as world conditions are “far less supportive.”

The worldwide economy may contract 1.4 percent this year, worse than an April forecast for a 1.3 percent drop, the International Monetary Fund said in a July 8 report. Global trade may contract in 2009 for the first time since World War II, according to the World Trade Organization, as U.S. and European demand slumps.

Fiscal Stimulus

Asian nations that are less reliant on exports may fare better than trade-dependent countries like Singapore, South Korea, Malaysia and Taiwan, according to Capital Economics.

Economies such as India, Indonesia, and the Philippines “will likely see less spectacular” second-quarter GDP gains, said Grice. “But the upside momentum should continue far into 2010 on the back of continued fiscal support, targeted on infrastructure improvements and rural spending.”

Japan and Australia are expected to experience “a near- term GDP bounce that will fade into 2010,” he said.

Asian policy makers have slashed borrowing costs and pledged more than $950 billion of stimulus plans to boost local consumer and business spending and offset the trade slowdown. Demand for goods from the world’s biggest economies in the U.S., Europe and Japan is still weak, and any pick-up in trade will be “bumpy,” Singapore’s Trade Minister Lim Hng Kiang said in an interview yesterday.

“As the fiscal boost fades and the global economy falters, Asia’s export-dependent growth will also fall back,” said Lombard Street’s Taylor. “Don’t expect Asia to do much heavy lifting for the global economy.”

Source

Filed under: technology by Finance Boss