Economic collapse in 2012? Not just yet

What's preventing a total economic meltdown last seen in 2008?

Even though HSBC has cut its Singapore 2012 GDP growth forecast to 2%, down from 5.2% -- with the rest of Asia getting a similar downward adjustment -- the region still has resilient local demand and high employment that are acting as growth lifelines.

Here's more from HSBC:

This is no 2008. So far, at least, Asia’s economies have merely slowed, not collapsed. True, like three years ago, Asia’s small traders have been harder hit than others.

Above all, Taiwan, Korea, and Singapore have seen output slide and export orders nose-dive. Inventories, too, are piling up on the docks, making a rapid ascent in the coming months unlikely. But, even here, domestic demand, while weak, is not in freefall.

In Korea, for instance, new equipment is still being installed, while shopping in Singapore continues, and even firms in Taiwan keep hiring. Try booking a restaurant in Hong Kong, meanwhile, and you’ll get the picture.

Risks abound, however. Trade with Europe is the obvious worry. Yet more relevant is the financial channel. Lending by European banks in the region is now well above its level of early 2008, and, presumably, the pressure for deleveraging is greater this time around as well.

Meanwhile, Asia has become addicted to easy money, with rapid credit growth driving domestic demand. A financial hiccup would thus have relentless repercussions throughout the region. No wonder investors are a tad nervous.

The coming year, then, will bring easing in China, not at the mouth-watering scale that sparked the last rebound, but enough to sustain a comfortable rate of growth. For the effect to unfold, however, it will take some time, so that Chinese demand, and growth in Asia at large, will only begin to perk up again by the second quarter. Prepare for more headwinds in the coming months.

Meanwhile, Korea and Taiwan will feel the headwinds of tired Western consumers, even if both should avoid a recession. Singapore, too, will struggle a little, being exposed to both trade and finance, something that will also weigh on Hong Kong, even if here, at least, visitors from the Mainland will keep up traffic in the restaurants.