Business

Global growth seen subdued, still heavily reliant on Asia

SINGAPORE, April 20 — The global economy is set to expand by a modest 3.3 per cent this year as a still-smouldering euro zone debt crisis and a relatively slow US recovery continue to leave Asia as the main driver of growth, Reuters polls showed yesterday.

Asian economies, as well as Latin America, are expected to pick up the pace later this year, driven by monetary stimulus after a soft patch — a boost Western policymakers are increasingly unable to provide.

China remains the regional engine. — Reuters picChina remains the regional engine. — Reuters picThe US economy has not taken off in the way many had hoped and the outlook there remains relatively subdued, although still much better than most of its Western peers.

“We think it is increasingly clear that the US is on a fairly self-sustaining recovery and is reasonably — but not completely immune — from what is happening in the euro zone,” said Andrew Kenningham, senior global economist at Capital Economics.

“In Europe, it’s really a very different story. We expect recession this year, but we find it difficult to see why the euro zone would recover next year.”

The polls of more than 700 economists across the world, taken in the past few days in the run up to this week’s meeting of G20 finance ministers, predicted 3.3 per cent global growth this year, unchanged from a poll taken three months ago.

That would mark a slowdown from the International Monetary Fund’s 3.9 per cent estimate for 2011 and is slightly less optimistic than their forecast for 3.5 per cent growth this year.

But 2013 is expected to see a slightly better 3.8 per cent, based on expectations that the euro zone crisis fades, the United States picks up steam and Asia finds its stride again.

A slowly improving US job market and reasonably solid expansion at the start of the year brightened the outlook somewhat, and the world’s biggest economy is now set to grow 2.3 per cent this year and 2.4 per cent next year.

US recovery will help its southern neighbours and Brazil, after just 2.7 per cent growth last year, will gain strength from near full employment, expanding by 3.2 per cent in 2012 and by 4.3 per cent in 2013.

In contrast, the euro zone is expected to shrink 0.4 per cent this year and will linger in a mild recession until the third quarter — three months longer than forecast in March.

However, those figures mask a huge disparity between the region’s stronger economies, such as Germany and France, and weaker ones like Italy, Spain and Greece.

Asia purrs

Asia’s economic growth probably troughed in the first quarter, the poll found.

Respondents refrained from slashing forecasts for the first time in a year, a positive sign although it may be too early to celebrate.

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

“We have seen in China much more aggressive action has 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 stabilisation in the long-drawn out European debt crisis.

“The first quarter has seen the bottom in growth, things are stabilising, 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 Neumann.

The outlook for the US economy is relatively subdued. — Reuters picThe outlook for the US economy is relatively subdued. — Reuters picChina’s economy is expected to grow by 8.4 per cent this year and 8.6 per cent in 2013 and analysts expect growth in India to touch 7.1 per cent this fiscal year, slightly lower than the 7.3 per cent in the January poll.

Japan should see moderate economic growth of two per cent this fiscal year, as rebuilding efforts on its quake-battered northeast coast and signs of recovery in overseas demand for Japanese goods contribute to a brighter outlook.

Analysts trimmed their growth expectations for Australia, New Zealand, Philippines, South Korea, Taiwan and Vietnam but the outlook for Singapore, Malaysia and Thailand had brightened, when compared to the last survey.

“The past two and a half years have taught us that Asia does not need strong growth in the G3 to grow fast itself. All Asia needs is the absence of negative growth and it will do just fine,” said David Carbon at DBS in Singapore.

Balancing act

Central banks will continue to try and walk the tightrope between supporting growth and controlling inflation.

A swathe of better-than-expected data in the first months of the year led economists to dial down expectations for the Fed to launch a third round of quantitative easing, or QE. They put the odds of more bond purchases at 30 per cent, down from the 33 per cent seen in a March poll.

The Fed and the European Central Bank will hold interest rates through to the end of next year at least to support growth, as will the Bank of England — which has likely called a halt to its own asset purchase program.

In India, which was the latest central bank in Asia to ease rates, economists predict another 50 basis point cut in the repo rate to 7.5 per cent by December and to seven per cent 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 which require the most support.

“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 Neumann. — Reuters

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