Fears spread as analyst warns of gloomy economy in Asia Pac by 2012

Cutting our growth estimates for 2012 GDP growth again: Since we downgraded our regional growth outlook in August 2011, we have been constantly worried about the increasing downside risks to growth. In addition to further evidence of weakening domestic demand, the external environment in Europe has made us more concerned about the region’s growth outlook. We are now cutting our GDP growth estimates for the AxJ region to 6.9% in 2012 from 7.3% previously.

Monetary and fiscal easing to be measured and selective: As the region faces further downside in growth, we expect policy makers there to initiate targeted fiscal policy measures and selective monetary easing to help contain some of the downside risks to growth. We also expect policy makers to introduce measures to help ease the credit constraints arising from deleveraging in Europe’s banking sector. As for monetary easing, we expect limited policy rate cuts in India, Indonesia, Korea, Malaysia and Thailand in 2012.

Risks to 2012 outlook are skewed to the downside: The lingering uncertainties over the sovereign debt situation in both Europe and US mean that risks to the growth outlook remain skewed towards the downside. Recent events imply that a disorderly deleveraging risk scenario in Europe cannot be discounted. Similarly, our US economics team sees the risks of a more significant
fiscal tightening than assumed under the base case.

Slow recovery in 2013: Unlike after the 2008 crisis, we believe that in this cycle, in our base case outlook, policy makers will not be using the same firepower to stimulate the economy. Moreover, we do not expect a strong recovery in the developed world in 2013. For G10, we expect GDP growth to recover to 1.4% in 2013 from 1.2% in 2012. Hence, we expect the pace of recovery to be more gradual compared with that seen in 2010, with GDP growth recovering to 7.5% in 2013.