Asia’s strong economic growth will persist despite an ailing US economy as the region diversifies its export markets and a new breed of young and wealthy citizens drive consumption, investment bank Merrill Lynch said yesterday.
Inflation is a bigger risk to the region than a slowdown induced by a recession in the US, the world’s biggest economy, said Timothy Bond, Merrill Lynch’s chief Asia economist.
Despite a global credit crunch resulting from a crisis in the US housing market, Asian economies expanded 9.5 percent, he said at a Merrill Lynch conference in Singapore.
China grew 11.5 percent in the second half of last year, Bond said.
In the first quarter of this year, the region is expected to continue to grow, although at a slower but still robust 9 percent, and China 10.5 percent, he said.
“I think we have a lot of evidence to support the decoupling view,” he said, referring a view that Asian economies are now in a better position to withstand the impact of a US recession, unlike in the past.
Bond also noted that while Asian exports to the US were flat last year, shipments of made-in-Asia goods to the rest of the world expanded 19 percent.
“I think the message here is that there is a lot of strength in the global economy despite some very clear headwinds in the US economy, and this is a region that exports to the world, not just the United States,” Bond said.
Asian exports to Europe have been growing between 25 percent and 28 percent annually mainly because of the stronger euro currency, which makes Asian goods cheaper, he said, adding that intra-Asian trade has also increased.
“Europe has been the number one driver of Asian exports over the past few years, not the United States,” Bond said.
Any slowdown in exports should be offset by an acceleration in consumption, powered by the emergence of younger and wealthier Asians who, unlike their parents, would like to spend their money, Merrill Lynch experts said.
Jyoti Jaipuria, Merrill Lynch’s head of equity research in India, said 50 percent of India’s more than 1 billion population were below the age of 30 and many of them are becoming richer and are more likely to spend.
In India “the consumer is learning to blow up money just like in the US,” he said.
“In the last five years, you have seen people become wealthier in this region ... There’s many more millionaires in Asia now than there were five years ago,” said Mark Matthews, chief strategist of Asia equities at Merrill Lynch.
“So even if their costs are going up and they are complaining about the gasoline [and] their food, the fact is that they are living in nicer places, they are going on longer holidays and they are spending more,” he said.