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Thursday, 15 May 2008

Asian economies holding up: Merrill Lynch

ASIA'S strong economic growth will persist despite an ailing US economy as the region diversifies its export markets and a new breed of young and wealthy citizens drive consumption, investment bank Merrill Lynch said on Wednesday.

Inflation is a bigger risk to the region than a slowdown induced by a recession in the United States, the world's biggest economy, said Timothy Bond, Merrill Lynch's chief Asia economist.

Despite a global credit crunch resulting from a crisis in the US housing market, Asian economies expanded 9.5 per cent and China grew 11.5 per cent in the second half of last year, he said at a Merrill Lynch conference in Singapore.

In the first quarter of this year, the region is expected to grow a slower but still robust 9.0 per cent, and China 10.5 per cent, he said.

'I think we have a lot of evidence to support the decoupling view,' he said, referring a view that Asian economies are now in a better position to withstand the impact of a US recession, unlike in the past.

Mr Bond also noted that while Asian exports to the US were flat last year, shipments of made-in-Asia goods to the rest of the world expanded 19 per cent.

'I think the message here is that there is a lot of strength in the global economy despite some very clear headwinds in the US economy, and this is a region that exports to the world, not just the United States,' he said.

Asian exports to Europe have been growing 25 to 28 per cent annually due mainly to the stronger euro currency which makes Asian goods cheaper, he said, adding that intra-Asian trade has also increased.

'Europe has been the number one driver of Asian exports over the past few years, not the United States,' Mr Bond said.

Any slowdown in exports should be offset by an acceleration in consumption, powered by the emergence of younger and wealthier Asians who, unlike their parents, would like to spend their money, Merrill Lynch experts said.

'In the last five years, you have seen people become wealthier in this region... There's many more millionaires in Asia now than there were five years ago,' said Mark Matthews, chief Asia equities strategist at Merrill Lynch.

'So even if their costs are going up and they are complaining about the gasoline (and) their food, the fact is that they are living in nicer places, they are going on longer holidays and they are spending more.' -- AFP

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