Interest rate cuts may provide a temporary boost to faltering Asian economies in the second half of this year but the landscape remains littered with risks, Standard Chartered Bank said yesterday.
The slowdown in the US economy and the inability of emerging markets to boost domestic demand to make up for the slack have dragged some economies into recession and spawned a spate of bad news from the region.
"Despite this, we have not changed our reading or view of the global economic and financial market outlook," the Britain-based banking giant said in a report by Gerard Lyons, its head of global markets research.
"This is largely because we have been at the pessimistic end of expectations about the US for some time," it said.
"Although there is little doubt that the US and the world economy are slowing, policy responses and the impact of lower interest rates may provide a temporary boost to economic growth over the second half of this year."
It said the weakness of recent US economic data may prompt another interest rate cut by the Federal Reserve at its meeting this month, but the key would be if consumer demand remains steady.
"It is important to be cautious about the end-game" for the US economy, the largest in the world, the report said.
"The need for balance sheet adjustment points to an eventual US recession, and these problems may be hitting hard next year, explaining our view that in 12 months time US rates are still more likely to be falling than rising.
"But predicting the exact profile is always hard and the near-term risks appear to be on the downside."
With the exception of China, where industrial production rose by an annual rate of 10.9 percent between January and July, the rest of Asia has been hurting from the US slowdown.
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