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Strong demand in Asia seen slowing next year

Business Times – 20 Mar 2008

This poses risks as firm US recovery unlikely: consultancy

 (SINGAPORE) Domestic demand in Asian countries this year look strong, but may slow down in 2009. This may present risks to regional countries as the US economy is unlikely to make a strong recovery next year, according to consultancy firm IMA Asia.

‘Many people in the United States say that (the plunge in global financial markets) will present difficulties for Asia because it would mean a slowdown in its export engine, but this is the second  year of slow export growth for Asia,’ noted Richard Martin, IMA Asia managing director. ‘Last year, export growth was pretty weak; it fell from 2006 for most countries in the region.’

He believes the region will sustain its demand growth for this year. ‘We think domestic demand looks secure in China, and in South-east Asia, we see good domestic growth… we’re pretty confident that domestic demand will carry the region for a second year.’

The issue, however, is ‘what happens next year’, said Mr Martin, who was in Singapore yesterday to speak to IMA Asia’s corporate clients on the region’s economic outlook.

‘By the time we get into the third year of weak exports growth, you’re going to see some difference (in growth) in the region,’ he said, adding that the US economy is unlikely to show a strong recovery in 2009.

And that difference, he said, will boil down to two factors – the level of country risk an economy faces, and the degree of reliance it has on the global market. ‘Economies with relatively high country risk will slow down a lot and have some volatility…we also need to look at the degree of reliance on the global market, not only trade reliance but also finance reliance.’

China, for one, ‘looks fine’ as its export sector makes up only about 25 per cent of its gross domestic product, while the country’s investments are financed from its domestic savings, he said. ‘However, we’ll see quite a different impact in a number of other countries. Hong Kong and Singapore face the prospect that their growths will be halved next year, because they’re highly dependent on global trade and global finance, and it’s the financial sector flows in the bank that are being cut back here.’

‘If it was just the trade cut back, we think domestic demand would keep (both economies) going, but once we cool that off, we could see a significant drop in growth in these economies.’ In view of these factors, Mr Martin advised companies to start revising their plans for next year.

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