HONG KONG: China is on track to reach its 8 percent growth target this year, while Asia's worst hit economies Singapore and Taiwan will see a sharp turnaround next year as the continent rebounds, according to a Reuters poll on July 15.
The poll, which covered estimates from more than 100 analysts in 12 economies, forecasts gross domestic product in Singapore and Taiwan will shrink by just over 5 percent this year -- deteriorating from a previous poll in March, which forecast they would both contract 4.9 percent.
While this year will be Singapore's worst ever and Taiwan's weakest performance since records began in the 1950s, the worst does appear to be over for the export-reliant economies. Both will see the sharpest turnaround in Asia from recession to growth next year, the poll shows.
Singapore already leapt out of recession in the second quarter and the poll forecasts the island economy will rebound 4.4 percent next year while Taiwan's GDP will increase 4 percent.
Signs that China's economy is picking up after a sharp slowdown is boosting trade, while fiscal stimulus across the continent is helping stem the downturn. But while economists foresee a rebound in Asia next year, that assumes an upswing in the United States.
"Recent data from China has indicated that their economy is building momentum, supported by their fiscal stimulus, and data from Korea and Taiwan show exports appear to have bottomed out," said David Cohen at Action Economics.
"There are still clouds over how much of this can be sustained: a lot will depend on global export demand and that will largely hinge on how much the U.S. and European economies can turn around."
China will continue to see the fastest growth in Asia, expanding by 8.8 percent in 2010 after an estimated 8 percent expansion this year. India is set to grow 7.2 percent during its financial year to March 2011, up from an estimated 6.3 percent expansion in the year ending March 2010.
The forecasts for next year are slightly better than in the March poll amid signs that exports are declining less sharply than early in the year and consumption in the United States and Europe may be stabilising.
Inflation is benign for most of Asia, and consumer prices are declining in Thailand and a few other economies. However, the poll shows prices are likely to pick up next year as the economic climate improves, notably in India where inflation is forecast to average 5.5 percent in 2010.
That means the downtrend in interest rates is probably over. New Zealand is expected to see the sharpest increase in rates by the end of next year, by 125 basis points, while South Korea's benchmark policy rate is set to increase by 100 basis points.
That will spur currencies. The kiwi dollar, which is forecast to depreciate slightly between now and the end of the year, will rally 8 percent next year. The South Korean won, which was quoted at 1,282 to the dollar on Wednesday, is set to gain 13 percent between now and the end of next year as the economy expands 4 percent in 2010.
Indonesia will be southeast Asia's best performer, growing 5 percent this year and 5.9 percent in 2010, as its more domestically driven economy insulates it from the export downturn.
Malaysia and Thailand should enjoy a modest rebound next year, of 4 percent and 3 percent respectively, after struggling with weak exports this year.
Australia is the only one of the 12 Asia-Pacific countries where growth will slow next year, to 0.5 percent for the year ending June 2010 from an estimated 0.8 percent for the year through June 2009.
Neighbouring New Zealand is starting to shake out of recession but growth next year of 2.2 percent will be modest compared with growth in Asian economies.
"The big picture points to an extended period of relatively subdued growth over a number of years as the economy rebalances," said Cameron Bagrie, chief economist at ANZ-National Bank. – Reuters