Citigroup Inc reduced its growth forecasts for Asia on concern that an expected recession in the US will curb demand for the region's exports.
Asia's emerging economies will probably slow "more visibly" from the second quarter, said economists Huang Yiping (
"Recent rapid deterioration in economic and financial conditions in the US has dimmed the outlook for emerging Asia," Huang wrote. "This year emerging Asia will likely see its first major growth downturn since 2001."
The region's economies, almost twice as reliant on overseas sales as the rest of the world, are being dragged down by weakness in the US, Japan and Europe, the markets for 60 percent of Asian shipments. Purchasing managers' indexes in China, Singapore, Hong Kong and India already indicate slowing manufacturing growth.
The US Federal Reserve has lowered its benchmark lending rate six times since September to cushion consumers and companies from the worst of a credit crunch that has made some of the world's biggest banks reluctant to lend to each other. Financial companies have posted at least US$195 billion in writedowns and credit losses tied to US mortgage markets.
US growth slowed to 2.5 percent in the fourth quarter from a year earlier and half of the economists in a Bloomberg News survey this month expect a recession this year.
"The US recession is likely to be deeper than previously expected, with growth staying below trend until late 2009," the economists said. "Sharply tighter financial conditions will be a significant drag on the US and other economies for some time."
Asian central bank officials are balancing the threat of an economic slowdown against signs of quickening inflation. Consumer price gains probably contributed to "official tolerance" for currency appreciation in China, Taiwan and Singapore, Citigroup said.
"Rising inflation has been the main policy concern in most Asian economies," the report said.
"However, most Asian economies already show initial signs of a slowdown and, given the recent sharp deterioration of the US economy, downside growth risks are soon likely to be the main concern," it said.
Some central banks may intervene to prevent "excessive" currency gains to maintain competitiveness as exports slow, the economists said. They predict that authorities in China, India, South Korea, Thailand and Taiwan may begin "policy easing" this year.
Asia's growth next year will be 7.4 percent, compared with an earlier forecast of 8.1 percent, the economists predicted.
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