Asia ‘may recover in 2nd quarter’

Bold policies, fall in commodity prices will spur quick rebound, says HSBC

THE latest in what has been a stream of predictions about how Asia might come out of the recession suggests that recovery might kick in as early as the second quarter of this year.

HSBC told a media conference yesterday that massive policy responses and a steep plunge in commodity prices should fuel the rebound.

That would mean a V-shaped recovery in which the economy bottoms out and rallies quickly, but it would not be as fast as the recovery from previous crises.

The bank pointed to rounds of aggressive interest rate cuts and substantial stimulus packages in the region, which should spur domestic demand.

‘The cavalry is on its way in the form of the most significant policy response ever,’ said senior Asian economist Robert Prior-Wandesforde. ‘The policy easing and sharp falls in commodity prices should lead to stronger domestic demand, thus generating recovery in Asia.’

This could take place in the next few months. But HSBC cautioned: ‘Deep and sharp V-shaped recoveries have been the hallmark of Asia in the past, but we suspect that this time around, the second upward leg will not be quite as steep.’

Last week, BNP Paribas forecast a ‘V-shaped’ recovery in Asia next year as the massive policy responses kick in.

Professor Danny Quah, head of economics at the London School of Economics and Political Science, who gave a lecture on Modern China organised by the National University of Singapore’s East Asian Institute yesterday, said East Asia is now in a stronger position than during the Asian financial crisis.

Analysts also noted that the sharp correction in commodity prices, most notably oil, will also benefit the region as Asia is more of an oil importer than exporter.

In an earlier report, Morgan Stanley analysts said a US$55 fall in the price of crude oil is like a US$385 billion (S$572 billion) tax cut for Asian consumers, equal to about 5 per cent of the region’s total gross domestic product. Oil was trading at around US$70 a barrel at the time. It is now trading at US$38.

There could also be light at the end of the tunnel for Singapore next year. HSBC expects the economy to shrink 2.8 per cent this year - below the Government’s forecast of between -2 and 1 per cent - before surging 5.5 per cent next year. Lower inflation, thanks to falling commodity prices, a supportive policy environment with expected fiscal easing and improving regional trade are set to fuel recovery.

It noted: ‘While the next six months are going to be very challenging, we believe the ingredients for an end-2009 recovery are falling into place.’

HSBC expects continued volatility in Asian stocks for the year as ‘ultra-low interest rates and huge fiscal packages’ meet global deleveraging. It tipped regional markets to end either 10 per cent higher or lower from their current levels.

But it said this year will be nowhere near as bad as last year, when Asian equities fell by 53 per cent. It advised investors to go for blue-chip household-name stocks, which ’should give decent upside during the upswings, but avoid excessive downside risk during the corrections’.

Source : Straits Times - 14 Jan 2009