Asian central banks may find it difficult to tighten monetary policy “meaningfully” because of political constraints caused by high unemployment, UBS AG said.
Jobless levels may remain “uncomfortably high” in the region for the next year or two, Duncan Wooldridge, chief Asia economist at UBS in Hong Kong, wrote in a note to clients on Tuesday. “Look for interest rates to remain on hold in most economies across Asia and for loose liquidity conditions.”
Asia’s export-focused manufacturers have been hit hard by the worst global recession since the 1930s, with the Asian Development Bank (ADB) estimating last month that jobs in the industry fell by as much as 7 percent through the first quarter from a year earlier. High unemployment coupled with weak inflation should keep interest rates in the region on hold this year before “modest” increases next year, according to UBS.
“Monetary tightening is likely to come only slowly and probably not until next year,” Wooldridge said. Asian jobless rates will probably peak in the next quarter or two, he added.
Rising unemployment has been “more pronounced” in Asia’s more advanced economies such as Taiwan, China, South Korea and Singapore, the ADB said in last month’s report. Jobless rates may also mask movements from manufacturing to “informal jobs” and growing underemployment, the Manila-based lender said.
China’s urban unemployment rate rose to 4.3 percent in the first six months of this year, from 4.2 percent at the end of last year, the state-run Xinhua news agency reported in July. In January, the government said its target for this year’s jobless rate was 4.6 percent, which would be the highest level since 1980.
As many as 41 million Chinese workers have lost their jobs during the global financial crisis, about 40 percent of the worldwide total, and 23 million remain out of work, the South China Morning Post reported in Hong Kong yesterday. It cited research by the Chinese Academy of Social Sciences.
Taiwan’s unemployment rate climbed to a record in July as companies held off on hiring because of the local recession, shutting graduates out of jobs. The seasonally adjusted rate increased to 6.01 percent, the most since government data began in 1978.
South Korea’s jobless rate fell in July for the first time since October last year, dropping to 3.8 percent from 4 percent in June, which was the highest in more than eight years.
The unemployment rate in Singapore held at 3.3 percent in the second quarter, the most since 2005.
Accelerating economic growth across Asia should see unemployment rates in the region peak in the second half of this year, UBS said.
“Most economies in the region look set to benefit from an upswing in global trade in the second half of 2009 and the first half of 2010,” Wooldridge said. “As production rises across the region, employment is likely to stabilize and consumer confidence should rise as a consequence, leading to some pickup in final demand.”
Second-quarter gross domestic product figures show Asian economies are “turning up,” he said.
Singapore and Japan exited recession last quarter and the Philippine economy expanded at three times the pace expected by economists. Malaysia’s GDP shrank less than analyst estimates.
Economies in Asia have “bottomed and will improve during the second half of 2009 and 2010,” Wooldridge said in the note. “We expect Asia ex-Japan to grow 4.1 percent this year and 6.6 percent in 2010.”
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