Asia’s economies will grow at a slower-than-expected pace this year and next as demand from the US, Europe and Japan weakens and turmoil in global financial markets deepens, Merrill Lynch & Co said.
The region will expand 7.7 percent this year, from an earlier forecast of 7.9 percent, said Merrill analysts in Hong Kong led by Asia-Pacific chief economist T.J. Bond. Growth will ease to 7.3 percent next year, lower than a previous prediction of 7.9 percent, the report published on Thursday said.
“The backdrop for global demand has deteriorated,” the economists wrote. “Asian exports to the US have already slowed significantly and will probably drop into negative territory. The deterioration in Europe and Japan is the unpleasant new surprise.”
Japan’s economy shrank 3 percent last quarter, the steepest decline since 2001, while the euro-area economy contracted 0.2 percent in the same period.
Manufacturing orders in Germany, Europe’s largest economy, fell for an unprecedented eighth straight month in July and Europe’s manufacturing and service industries contracted for a third month last month.
Asia’s “growth should remain well above recession levels,” the Merrill report said.
“However, we now expect it to drop below trend,” the report said.
Goldman Sachs Group Inc last month estimated that half of the world economy already faced the threat of recession, with richer nations faring the worst as emerging markets continue to expand.
The global economy faces a 25 percent chance of recession in the next year, UBS AG economists said.
The US Treasury Department and the Federal Housing Finance Agency last weekend seized control of Fannie Mae and Freddie Mac after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies, which make up almost half the US home-loan market.
Financial institutions worldwide have reported US$510 billion in losses and writedowns since the beginning of last year and the credit market collapse erased US$9 trillion from global stocks in the past year.
“The weakness in financial markets has reached levels where it could affect the real economy,” the Merrill report said.
“The main channel is through the exchange rate: a sharp currency depreciation can feed through rapidly into inflation. Higher interest rates in response tend to slow domestic consumption and investment,” it said.
The US dollar this quarter has strengthened against nine out of 10 Asian currencies tracked by Bloomberg.
China’s economy will expand 10 percent this year, Merrill predicted, cutting its earlier forecast of 10.4 percent.
Growth will be 9.2 percent next year, the economists said, a percentage point less than previously expected.
“We expect China’s potential growth rate to slow towards 9 percent for the next three years, gradually declining towards 8 percent by 2013,” the economists said.
“Domestic consumption and investment, instead of exports, will help sustain China’s growth and smooth volatility due to the global slowdown and the real-estate cycle,” they said.
Tropical Storm Usagi strengthened to a typhoon yesterday morning and remains on track to brush past southeastern Taiwan from tomorrow to Sunday, the Central Weather Administration (CWA) said yesterday. As of 2pm yesterday, the storm was approximately 950km east-southeast of Oluanpi (鵝鑾鼻), Taiwan proper’s southernmost point, the CWA said. It is expected to enter the Bashi Channel and then turn north, moving into waters southeast of Taiwan, it said. The agency said it could issue a sea warning in the early hours of today and a land warning in the afternoon. As of 2pm yesterday, the storm was moving at
DISCONTENT: The CCP finds positive content about the lives of the Chinese living in Taiwan threatening, as such video could upset people in China, an expert said Chinese spouses of Taiwanese who make videos about their lives in Taiwan have been facing online threats from people in China, a source said yesterday. Some young Chinese spouses of Taiwanese make videos about their lives in Taiwan, often speaking favorably about their living conditions in the nation compared with those in China, the source said. However, the videos have caught the attention of Chinese officials, causing the spouses to come under attack by Beijing’s cyberarmy, they said. “People have been messing with the YouTube channels of these Chinese spouses and have been harassing their family members back in China,”
The Central Weather Administration (CWA) yesterday said there are four weather systems in the western Pacific, with one likely to strengthen into a tropical storm and pose a threat to Taiwan. The nascent tropical storm would be named Usagi and would be the fourth storm in the western Pacific at the moment, along with Typhoon Yinxing and tropical storms Toraji and Manyi, the CWA said. It would be the first time that four tropical cyclones exist simultaneously in November, it added. Records from the meteorology agency showed that three tropical cyclones existed concurrently in January in 1968, 1991 and 1992.
GEOPOLITICAL CONCERNS: Foreign companies such as Nissan, Volkswagen and Konica Minolta have pulled back their operations in China this year Foreign companies pulled more money from China last quarter, a sign that some investors are still pessimistic even as Beijing rolls out stimulus measures aimed at stabilizing growth. China’s direct investment liabilities in its balance of payments dropped US$8.1 billion in the third quarter, data released by the Chinese State Administration of Foreign Exchange showed on Friday. The gauge, which measures foreign direct investment (FDI) in China, was down almost US$13 billion for the first nine months of the year. Foreign investment into China has slumped in the past three years after hitting a record in 2021, a casualty of geopolitical tensions,