Daiwa Capital Markets yesterday trimmed its economic growth forecasts for Asia for this year and next year, citing the deceleration of the Chinese economy as posing risks to the region.
Daiwa said it is also seeing “weaker growth dynamics” for the region because of the implications of US Federal Reserve saying it may wind down its stimulus program if the US economy shows sustained growth.
In a note to clients, Daiwa lowered its growth forecast for regional economies — excluding Japan — to 5.9 percent this year from its previous estimate of 6.4 percent, and to 5.8 percent from 6.5 percent for next year.
“In our new forecasts, we predict that the Fed will taper its program later this year and eventually end it in the middle of next year, causing money outflows from Asia,” Hong Kong-based Daiwa senior economist Kevin Lai (賴志文) said in the note. “At the same time, we expect Asia’s fundamentals to continue weakening amid China’s structural economic slowdown.”
Regional economic expansion has tempered since last year, although Asia-Pacific performance remains stronger relative to other regions, the note said.
Daiwa cut its growth estimate for Taiwan this year to 2 percent from 2.3 percent, as well as reducing its forecast for next year to 2.5 percent from 4 percent.
It kept its 2.3 percent estimate for South Korean growth this year, but cut next year’s forecast down to 2.8 percent from 3.2 percent.
Daiwa projected Hong Kong would see 2 percent growth this year and 1.8 percent next year, while Singapore would post 1.5 percent growth this year and 2 percent next year, the note showed.
On Tuesday, the Asian Development Bank (ADB) revised downward its growth forecasts for the region to 6.3 percent this year and 6.4 percent next year, from April’s forecasts of 6.6 percent and 6.7 percent respectively.
The bank also lowered its growth estimate for China, shaving it down to 7.7 percent this year and 7.5 percent next year.
Daiwa was more pessimistic about China’s outlook, reducing its GDP growth forecast to 7.4 percent this year and 7.2 percent next year, compared with its previous estimates of 7.8 percent and 7.5 percent respectively.
China’s latest GDP data, released on Monday, showed that the economy has been decelerating steadily, with annual growth cooling down to 7.5 percent in the second quarter from 7.7 percent and 7.9 percent in the previous two quarters.
“If China’s economic slowdown gets out of hand, say if growth drops to below 7 percent in the next 12 months, there would be a case for more stimulus support,” Lai said, adding that Chinese policymakers might speed up urbanization programs to boost growth or make reserve ratio cuts in response to the slowdown.
Aside from China, continuing global headwinds and volatility in global capital markets are also weighing down growth prospects for Taiwan, South Korea, Hong Kong, Singapore among other regional economies, Daiwa said.
On a positive note, sovereign ratings in the region are likely to withstand the ongoing market volatility because key credit rating metrics related to economic growth, fiscal health and external trade performance remain resilient, Moody’s Investors Service said in a report yesterday.
Moody’s said it did not see “material downward pressures” on 21 of 22 rated sovereigns in the region and gave a stable outlook for all, except Pakistan — which has a “CAA1” debt rating, seven levels below investment-grade — for which it gave a negative outlook.