HSBC says `contours of recovery' emerging in Asia

Publication: NST

Date of publication: Jan 11, 2013

Section heading: Business Times

Page number: 004

Byline / Author: By Rupa Damodaran

KUALA LUMPUR: Asian economies can now step out of the shadows of global uncertainties as the "contours of a recovery" are emerging, said HSBC Bank.

"The slowdown (in economic activities) has been short-lived and shallow, and Asia will be on a growth path in the second half of 2013 with an uptick in inflation," Leif Lybecker Eskesen, its chief economist for India and Asean said at an Asia Economic Outlook media briefing yesterday.

China's policy measures have begun to spill over in the fourth quarter of 2012, he said,

The Asean-5 economies (Malaysia, Indonesia, the Philippines, Thailand and Vietnam) have shown resilience due to the domestic drivers like low level of unemployment and accommodative monetary policy.

In the case of Malaysia, the resilience is further supported by projects under the Economic Transformation Programme (ETP) and pre-election handouts.

HSBC has revised upwards its growth estimates for 2012, from 4.2 per cent to 5.3 per cent with a 4.8 per cent growth outlook for 2013.

Eskesen, however, said that to sustain growth over the medium term and pull Malaysia out of the middle-income trap, there has to be a policy push on a number of fronts, in addition to cranking up investments under the ETP.

Structural fiscal reforms should also be implemented.

Broadening the tax base through the proposed goods and services tax (GST) would help reduce reliance on pro-cyclical oil-related revenues.

He said resource allocation would be improved by the streamlining of subsidies and replacing them with targeted assistance to the needy.

HSBC expects Bank Negara Malaysia to hike the Overnight Policy Rate (OPR) by 25 basis points each in the second and third quarters of 2013, bringing the OPR to 3.50 per cent by year-end.

"As the little slacks that are left in the economy evaporate, the monetary policy has to move back into the neutral gear, which is at 3.5 per cent.

"If it doesn't, then inflation process will begin to build up."

Eskesen said structural policies will be important to support growth for Asian economies over the next few years.

HSBC expects Japan to grow by 0.2 per cent in 2013 but there are upside risks to the projection.

India is also showing early signs of stabilisation on the back of reforms but it needs more structural policies to lead the economy and for growth to kick in.

The US economy is poised to recover in the second half of 2013, led by private investments and consumption on rising confidence, to deliver a 1.7 per cent growth number for 2013.

Fiscal issues in the US will linger for a few months, he said, adding that in the case of the eurozone where the outlook remains poor, road bumps will remain for the next few years.

On the foreign exchange outlook, Paul Mackel described the renminbi as an exciting currency story as it becomes internationalised.

The renminbi will be among the leading Asian currencies which will fare better than the G4 currencies (US dollar, euro, yen and sterling).

"The volatility of the US dollar to renminbi should rise over time with greater capital account opening."

Mackel, who is head of Asian currency research, described the won and the peso as attractive while the baht is set to outperform the Singapore dollar and Taiwanese dollar and ringgit.

In the case of the ringgit, he has projected it to touch RM2.99 versus the greenback by the end of 2013.

The demand for Malaysian portfolio assets are strong but trade inflow pressures have softened, he added.

"The overall story for the ringgit is one of muddling through with continued appreciation but less opportunity for outperformance."