Citigroup sees 1.2% economic contraction for next year
S’pore is the only key Asian nation the bank expects to post negative growth
CITIGROUP now expects the Singapore economy to contract 1.2 per cent next year - the only key Asian economy it sees shrinking in 2009.
Expectations of a more severe recession in the US prompted the bank to make further cuts to its Asian GDP forecasts for 2009.
In a report released yesterday, Huang Yiping, Citigroup’s chief Asia economist in Hong Kong, cut Singapore’s 2009 GDP growth forecast from plus-2.5 per cent to minus-1.2 per cent.
‘So far, Singapore is the only economy in our forecasts (that is tipped) to post negative growth in 2009,’ Dr Huang said. ‘For them, domestic demand is simply not big enough to offset weakness in external demand.’
Citigroup has kept its 2009 CPI growth forecast for Singapore at 2 per cent.
The bank has cut 2009 GDP growth forecasts for 12 of the 13 countries it tracks in the region.
Malaysia is the sole economy for which its forecast has been maintained - at 5.1 per cent growth.
Hong Kong’s growth forecast has been cut from 3.8 to 2.8 per cent.
Dr Huang said that Singapore and Hong Kong are probably the most open economies in the region, so they are likely to suffer from sharper growth deceleration.
Economies with larger domestic markets and greater policy flexibility should perform better than the rest, he said. ‘China and India provide two different examples. The Chinese economy is relatively open, but flexibility in both fiscal and monetary policy means China should be more able to offset weakness in external demand and maintain strong growth. The South Asian region, including India, Bangladesh and Sri Lanka, is relatively closed and therefore is less exposed to the risk of a growth slowdown.’
Citigroup now expects the Asia-Pacific region as a whole to grow 6.3 per cent next year, down from its previous estimate of 7.2 per cent.
‘While it would be Asia’s lowest growth rate for the past eight years, it’s still pretty decent performance, especially compared with 2.1 per cent in 1998 during the East Asian financial crisis and 4.8 per cent in 2001 when the US experienced one-quarter negative GDP growth,’ Dr Huang said. ‘While growth risks have increased sharply, it’s not as bad as during the Asian financial crisis.’
But corporate earnings and financial asset quality could suffer significantly, according to Citigroup.
It said that Asian central banks, led by the People’s Bank of China, will probably cut rates aggressively alongside major global central banks.
Citigroup also reckons Asian currencies are likely to remain weak in the near term. The bank noted that its forecasts are subject to revision as global markets evolve.
Separately, ING said that data from its quarterly Investor Dashboard Survey showed a 39 per cent fall in sentiment in Asia over the past 12 months.
The survey tracks the sentiment of mass-affluent investors each quarter in 13 Asia-Pacific markets including China and Singapore. In Q3 this year, the Index fell to 86 - from 109 in Q2 - as investors took stock of global market and economic developments.
The data suggests that investors in more US-dependent markets such as China, Hong Kong, Singapore, Korea and Taiwan are more sensitive to volatility in global markets, ING said.
Source : Business Times - 15 Oct 2008
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