Tue, Oct 07, 2008 - Page 11 News List

UBS warns of recession conditions

BLOOMBERG

UBS AG cut its forecast for economic growth in Asia excluding Japan next year, saying the region will face “recession-like conditions” as the global economy slumps.

The bank estimates a 6.1 percent expansion, down from 6.9 percent, Duncan Wooldridge, a Hong Kong-based economist, said in a note today. UBS reduced its estimate for China’s growth next year to 8 percent from 8.8 percent.

The likelihood of a deeper and more protracted recession in the US than UBS previously anticipated and slower growth in Europe and Japan led to the change, Wooldridge said.

Steep declines in Asian stock markets will slow consumption and investment, he said.

“A prolonged recession and delayed recovery suggests more headwinds for markets,” Wooldridge said.

UBS cut its forecast for China’s growth this year to 9.6 percent from 10 percent.

However, in separate news, Indonesia’s exports grew at a faster pace in August on higher prices of palm oil, coal and other commodities, supporting economic growth and giving the central bank room to raise interest rates further.

Overseas sales rose 30.3 percent in August from a year earlier to US$12.5 billion, Indonesia’s Central Bureau of Statistics said in Jakarta yesterday. That compared with a 25 percent increase in July and the median forecast of a 32 percent gain in a Bloomberg News survey of 14 economists.

Rising sales of coal, palm oil and rubber helped push the country’s economic expansion to 6.4 percent in the second quarter, the fastest pace in nine months. Still, Indonesia’s export growth may slow as the global credit crisis that forced Lehman Brothers Holdings Inc into bankruptcy reduces overseas demand.

“Increasing external demand headwinds arising from the global credit crunch and economic slowdown will likely temper export volume growth in the coming months,” said Sim Moh-siong, a strategist with Citigroup Inc in Singapore.

“We expect gradually cooling domestic demand to also rein in imports and keep the trade balance at a small surplus,” Sim said.

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