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Asia to Lead Global Growth as US Recoups |
| Source: |
asiaone.com |
| Source Date: |
Monday, January 10, 2011 |
| Focus: |
Electronic and Mobile Government, Citizen Engagement, Internet Governance
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| Created: |
Jan 11, 2011 |
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GLOBAL economic growth this year will continue to be driven largely by the emerging markets, particularly in Asia, despite some optimistic economic data out of the United States recently.
Consumer spending in the US may be on the rise and data released last Friday showed that jobless-benefit claims have dropped from 9.8 per cent in November to 9.4 per cent last month - the lowest level since May 2009 - but analysts say the situation is still far from rosy.
While the 103,000 jobs added last month were encouraging, it fell short of what economists had been predicting.
The decline in unemployment was also attributed in part to a disturbing rise in the number of people who stopped looking for work.
Mr Lars Kalbreier, Credit Suisse's head of global equity and alternatives research for its private- banking division, said that even if the US wants an inflation- led recovery (rather than deflation), the country needs to bring the unemployment rate down by another 2-3 per cent.
He explained that, historically, inflationary spikes typically occur only after a sharp drop in unemployment rates.
"The monetary and fiscal policies of the US government are extremely supportive of reflating the economy...and will automatically lead to inflation, but I do not believe this will happen this year," said Mr Kalbreier.
Federal Reserve chairman Ben Bernanke last Friday reiterated that the labour market's recovery will be gradual, and that it could take as much as four to five more years before unemployment returned to a normal level of 6 per cent.
Credit Suisse held the view that any speculation about a reversal in the Federal Reserve's quantitativeeasing policy is premature.
"While there has been a lot of political pressure on the US, the Fed continues to be concerned about the economy getting into deflation or even a double-dip scenario," said Mr Kalbreier.
Still, he cautioned against underestimating American regeneration - specifically the ability of US companies to reinvent and innovate and thus fend off rising competition from the emerging world.
Meanwhile, Asia is forecast to remain the principal contributor to global growth this year, and is expected to sustain average gross domestic product growth of about 7 per cent.
This figure, while lower than last year's 8.3 per cent growth, is still robust.
But certain risks still remain for Asia.
"Asian economies remain on monetary steroids, pumped up by low rates and plenty of foreign liquidity," HSBC cautioned in its first economic quarterly report of the year.
"Overstimulation, in life as in economics, usually has dire consequences, and central bankers need to worry about rising inflationary pressures, asset bubbles and excessive investment."
Emerging markets with currencies pegged to the US dollar are in particular danger of overheating, as investors continue to flee the flagging US dollar in search of higher yields.
Another key issue is inflation, especially with commodity prices soaring close to crisis levels. In many Asian countries, including China and India, food inflation has already hit double digits.
But runaway inflation, such as in 2008, is unlikely, according to some experts.
Credit Suisse expects agricultural prices to soften by the end of the first quarter, with an increase in planting area and more targeted administrative price-control measures by individual governments expected to trigger a correction.
Oil prices are also expected to remain range-bound between US$85 (S$110) and US$95 per barrel, well below the record US$145 reached in 2008.
The consensus among economists is that Asia needs to tighten monetary policy rapidly.
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Asia to Lead Global Growth as US Recoups GLOBAL economic growth this year will continue to be driven largely by the emerging markets particularly in Asia despite some optimistic economic data out of the United States recently
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