Slower growth ahead for Asia: RBS

ASIA'S economic growth could suffer in the next few quarters as exports to the West slow sharply due to sovereign-debt troubles in Europe and a lacklustre recovery in the US, Royal Bank of Scotland (RBS) analysts warned yesterday.

Growth in China, which has been a major engine of the recovery in Asia, is also likely to slow as the effects of its stimulus measures wear off, dragging down the pace of expansion elsewhere in Asia.

The result: A period of slower growth than in the boom years before the latest financial crisis, or in the rebound since late last year.

'One leg of Asia's growth is going to be chopped off in the coming months,' said Sanjay Mathur, head of research and strategy for non-Japan Asia at RBS. 'Exports are going to slow down.'

As a result, 'growth next year will start to slow', he said. A slower-growing Europe, coupled with a weaker euro, means demand for Asia's exports is likely to fall.

Even China is starting to look 'a lot shakier', he said. 'We are starting to see industrial activity show some kind of fatigue.'

The purchasing managers' index for China published by HSBC and Markit fell to 52.7 in May - the lowest reading in 11 months - from 55.2 in April, suggesting that while Chinese manufacturing activity is still expanding, the pace of growth is slowing.

In stock markets, the result could be a 'major downgrade in earnings expectations' as investors adjust to a slower growth outlook for the broader economy, Mr Mathur said. 'We are in for a fairly rough ride in the financial markets.'

But a period of slow growth in Asia could benefit the region by forcing policy-makers to make structural changes to their economies needed to sustain growth in the long term without relying heavily on private consumption demand in the West, he said. 'Once we see that growth is not going to be the same as what we're used to, we will see greater efforts towards improving domestic demand.'

That would include more efforts to promote small and medium enterprises, and more incentives to boost the services sector - reducing the reliance on manufactured exports for economic growth.

Source: Business Times, 9 Jun 2010