Asia’s growth picking up; too early to celebrate

SINGAPORE — Asia’s economic growth probably troughed in the first quarter but a bounce-back may be muted, a Reuters poll showed.

Although the fear factor has faded over Europe’s debt crisis and a slowing US economy, both will still be a drag on growth rates in the region.

Respondents in a quarterly survey of over 250 economists refrained from slashing growth forecasts for the first time in a year, a sign that the outlook is certainly upbeat even though it may be too early to celebrate.

“Confidence is slowly crawling back in,” said Frederic Neumann, co-head of Asian economics research at HSBC.

“We have seen in China much more aggressive action been taken to support growth, China clearly remains the regional engine, plus the financial risks we saw emanating from Europe last year have also started to dissipate.”

While powerhouses China and India will not have the double-digit growth seen before the global financial crisis, both economies will rebound in 2013, supported by policy easing, robust domestic demand, reviving exports and a stabilization in the long-drawn European debt crisis.

“The first quarter has seen the bottom in growth, things are sterilizing, and will possibly re-accelerate over the next few quarters with the region likely to hit its full stride in the second half of the year,” added Mr. Neumann.

Expectations for growth in China have not budged since the last poll in January, an encouraging sign after economists consistently downgraded their outlook in the last three polls.

Asia’s largest economy is expected to grow at an annual 8.4% this year and 8.6% in 2013. China had reported its slowest quarterly growth since the tail-end of the financial crisis in the March quarter and the poll shows that was probably the trough and the economy will rebound in the coming quarters.

For India, analysts expect growth to touch 6.8% this fiscal year and 7.1% in the next, which was slightly lower than the 7.0% and 7.3% in the January poll.

The survey, which covers 13 economies across Asia, showed analysts trimmed their growth expectations for Australia, New Zealand, Philippines, South Korea, Taiwan and Vietnam.

On the other hand the outlook for Singapore, Malaysia and Thailand had brightened, when compared to the last survey.

Growth for all economies polled is expected to be faster in 2013 than 2012, the sole exception being Thailand.

Asian economies will remain on track for growth and could even pick up pace later this year as long as global conditions do not deteriorate rapidly.

Central banks will continue to try and walk the tightrope between growth and inflation with most expected to hold or start hiking rates towards the yearend, the survey showed.

“The trouble with this very benign outlook for growth in Asia is that price pressures are still bubbling away under the surface and with growth picking up they will likely break through,” said Mr. Neumann.

India, which was the latest central bank in the region to ease rates, is an exception to this view, with economists predicting another 50-basis-point cut in the repo rate to 7.5% by December and to 7% by June 2013.

While the People’s Bank of China may leave lending rates untouched, it will ease liquidity and opt for selective easing targeted at smaller firms.

In Indonesia, economists have scaled back their expectations for an interest rate cut given a recent fuel subsidy.

“The big story for 2012 is not necessarily going to be the collapse of growth but rather how quickly inflation comes back as these economies pick up steam,” said Mr. Neumann. — Reuters