Asian markets that have been buoyed by easy liquidity over the past few years have now to re-orientate to a world where the “music” of cheap money has virtually stopped.
February 28, 2014 | ResearchAsia Pacific economies continue their bumpy ride from a year ago. For the first time, there are signs of weakness and deceleration of the scintillating growth that the region has experienced since the end of the global financial crisis.
However, while Asia slows, the long-anticipated green shoots in the G3 economies are finally sprouting. Growth in developed economies is likely to accelerate in 2014, narrowing the growth gap with emerging economies in Asia Pacific.
G3 recovery
The International Monetary Fund forecasts that the world economy will grow 3.7% in 2014, rising to 3.9% in 2015, buoyed mainly by optimism brought about by the re-emergence of growth in the G3 (US, Europe and Japan) economies. Growth in the US economy is likely to be in the 1.5%–2.0% range and Europe is likely to experience some tepid growth for the first time in two years, while Japan’s stimulus package will shore up growth by up to 2%. Reduced deleveraging and stronger personal and corporate balance sheets will help to boost growth, although unemployment rates will remain relatively high despite some decline.
G3 interest rates will remain low to shore up recovery amid subdued inflation, while the US dollar (USD) is set to rally broadly in the wake of higher US yields. Asian economies will continue to moderate as they undergo structural reform, with growth gradually decelerating, narrowing Asia’s outperformance of its global counterparts. USD rate movements are expected to have significant impact on Asian markets over 2014, as Asian sovereign yields rise to attract foreign investors. As the Fed tapers, the competition for capital will cast a pall over Asian currencies, with countries struggling with current account deficit and rising inflation the most susceptible.
Markets will eventually become accustomed to an environment of US Federal Reserve (US Fed) tapering while the message that “tapering does not mean tightening” will h...
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Asia Pacific, Capital & Strategic Issues, China, Hong Kong, India, Indonesia, Industry Outlook, Japan, Philippines, Regulation, Risk and Regulation, ThailandKeywords:IMF, G3, US Fed, Political Risk, Market Risk