Asian economies struggling to reignite growth while exports sag

REUTERS: Emerging Asia will show little increase in economic growth rates this year due to weak exports, with China giving more priority to making needed reforms and India tightening policies to defend its beleaguered rupee, Reuters polls showed yesterday.

Prospects for 2014, however, look better with most economies expected to grow faster than this year on the back of a recovery in U.S. growth.

The polls on the outlook for a dozen top Asian countries, taken between July 8 to 17 showed economists have slashed 2013 growth forecasts for almost all economies in the region with China, India, Hong Kong, Singapore and Taiwan bearing the brunt.

Indeed, forecasts for gross domestic product growth in China and India, the two regional powerhouses, have now been cut in almost every quarterly poll since a year ago.

China is expected to grow 7.5 percent this year, while India is forecast to show 5.5 percent growth - way below levels both countries are used to.

Supplying developed countries with everything from consumer and electronic goods, to clothes and technology equipment, Asia’s export focused economies have been hit by a prolonged slowdown in their main markets.

In June, China’s exports fell for the first time in 17 months and a private survey of the manufacturing sector showed new orders declined that month for the second time in a row.

Indian exports too fell for the second straight month in June.

“Chinese data disappointed recently and indicates that economic growth will cool down further later in 2013. Accordingly, economic momentum has slumped further in other emerging markets due to sluggish overall global demand momentum,” said Stefan Hofer, Emerging Market Economist at Julius Baer.

If the current rate of export growth holds for the rest of the year, calculations by Reuters on data from the World Trade Organisation show exports by China and India will show low single-digit growth this year, while those in Indonesia, South Korea, Taiwan and Thailand will likely stagnate or contract.

The deterioration on the trade front, coupled with capital outflows as investors took fright over speculation that the U.S. Federal Reserve would start winding down its megastimulus programme - a major source of cheap funds - exposed the weaknesses of several Asian economies.

A crying need for structural reforms in some was thrown in sharp relief.

China and India are both racing to put in place reforms that will reduce their reliance on hot money flows and strengthen core industries.

While Chinese GDP growth has slowed to 7.5 percent in the second quarter, the ninth slowdown in the last 10 quarters, the government has said it will tolerate lower growth rates in order to push through reforms.

Premier Li Keqiang’s government will push more supportive, progrowth initiatives and there have been signs of such targeted measures recently, such as expanded lending to small businesses and agriculture and increased investment in affordable housing for poor families.

“As growth has cooled in developed economies, China has been transitioning to a more domestic demand driven economy,” wrote Jay Bryson, Economist at Wells Fargo in a note.

“We look for the year-over-year rate of growth in China to come in around the 7 to 8 percent range over the next year and a half. Although this is certainly slower than the torrid double-digit growth achieved a few years ago, it is more sustainable, especially given the shifting drivers of Chinese economic growth.”

India has also announced a spate of reforms recently to attract increased foreign investment in the telecom, defence, insurance and retail sectors.

The growth rate in other Asian countries like Indonesia, Malaysia, Philippines, South Korea, Taiwan and Thailand are expected to range between 2.7 percent and 6.8 percent this year.

A separate poll last week showed economic recovery in the United States will pick momentum in the second half of the year while Europe stagnates and Latin America’s largest economies grow more slowly than previously expected.