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Asia Advised to Rebalance Its Economy
Source: http://www.bworldonline.com
Source Date: Thursday, May 16, 2013
Focus: Institution and HR Management
Created: May 21, 2013

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The Philippines, though, does not fall in this category since it boasts of the strongest consumption in the region.


"We believe consumption, not investment, is the end-all to economic activity, although investment is clearly needed to build and maintain capital stock and infrastructure," S&P said in a report yesterday.



As most Asian countries complete the infrastructure build-out stage, it must ensure that its growth is driven by consumption. Boosting investment can help, but it eventually yields diminishing returns, it explained.


S&P said: "The point for much of Asia is that increasing consumption will help to sustain growth."


In the region, only the Philippines can boast of consumption accounting for 70% of its gross domestic product (GDP).


China and Singapore have the lowest, with ratios below 40%, while Malaysia is just below 50%. For the rest of Asia, consumption comprises 50-65% of their GDP.


"In our view, the factors holding back faster private consumption growth in Asia are largely structural," S&P said.


It urged countries to strengthen social safety nets, reducing "precautionary saving" among households.


State enterprises must also pay dividends, just like private corporations, and ensure that they trickle down to raise household income.


Countries must also remove their banks’ bias of lending only to larger companies and spread the funds to small and medium enterprises.


"Getting credit to these constrained sectors will increase productivity, incomes and consumption," it said.


Lastly, Asia must allow its currencies to strengthen.


S&P explained: "Stronger currencies mean cheaper imports and more purchasing power flowing to households, which will serve to boost consumption."


S&P is an American financial services company known as one of the "big three" global credit-rating agencies, which also include Moody’s Investor Service and Fitch Ratings.
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