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Asia poised for growth on back of export boost

Publication Date : 09-01-2014


Increased exports on the back of the improving economic outlook in the United States and Europe could give Asia its strongest growth since 2011.

That is the optimistic view of Deutsche Bank's chief economist for Asia, who expects the US to grow 3.2 per cent this year while the European Union will expand 1.2 per cent - outcomes that "will reward Asia handsomely".

Dr Taimur Baig told a briefing here on Wednesday that global semiconductor demand is recovering from its "protracted malaise" as seen by more IT spending among households and businesses.

This will in turn provide strong support for Asian exporters.

"We have a bullish outlook for Asia. This will be a better year for the region compared to 2013," said Baig.

He expects Asia ex-Japan to grow by 6.9 per cent this year - a 90 basis points improvement over 2013 - which would be the best since 2011.

The boost in Asian exports is well timed, as it is occurring as domestic demand shows signs of fatigue.

"Without the boost from trade, Asian economies in general and Singapore, in particular, would have been looking at a rather lacklustre year," he said in an outlook report released at the briefing.

China also plays a part in the bullish outlook for the region with Baig expecting it to grow by 8.6 per cent this year.

Factors such as less overcapacity and rising external demand underpin his rosy projections, which are among the more optimistic projections among economists for China.

Yet Asia, once a magnet for capital inflows, is now taking a back-seat as funds flock to the more alluring growth story in developed markets.

This, and the gradual tapering by the United States Federal Reserve of its stimulus programme, have raised the hurdle for Asian markets to draw in capital.

A key systemic risk to watch is the impact of higher interest rates on the economies, which Baig expects to take place as early as the first or second quarter of this year.

Higher rates could pressure household debt and affect asset prices, which in turn could lead to stress in the financial sector and drag down consumption, he said.

Singapore, not unlike Malaysia, Hong Kong, Taiwan and South Korea, has a large household debt.

Household debt to gross domestic product here is 77 per cent, 10 percentage points higher than in 2010.

"The transition may not be smooth. But the deeper the financial market and stronger the banks, the less likelihood of stress," he said.

While policymakers here have taken measures to address large household debt, concerns persist.

"Our concern is that even a 100 basis point rise in interest rates could cause a major ripple," said Baig.


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