Asia Plans Steps to Revive Growth as Exports Falter

Asia Plans Steps to Revive Growth as Exports Falter

Jan. 3 (Bloomberg) -- Asian governments are preparing more measures to boost growth as a slump in global demand hurts exports, deepening the region’s economic slowdown.

India yesterday cut interest rates for the fourth time since October and unveiled another stimulus package. Singapore will bring its budget forward to January from February and China may announce a second round of measures to revive growth as early as this month. South Korean and Malaysian leaders this week said they will take more steps to spur expansion if necessary.

Asian economies are slowing as demand for their products erodes amid recessions in the U.S., Japan and Europe. Singapore yesterday said its economy in 2009 may contract more than it forecast in November, and reports showed exports and manufacturing shrank in China, South Korea and Australia.

“There will be more fiscal pump-priming and monetary-policy loosening forthcoming over the next three to four months,” said Frederic Neumann, an economist at HSBC Holdings Plc in Hong Kong. “We believe that Asia will be able to generate enough domestic demand to lead a recovery in growth” in the second half of the year, he said.

The Reserve Bank of India lowered the overnight lending rate by one percentage point to 5.5 percent. The government also more than doubled the amount overseas investors can hold in local bonds and extended capital to the nation’s banks.

India has pushed its overnight rate, the repurchase rate, down by 3.5 percentage points and its borrowing rate, the reverse repurchase rate, by 2 percentage points since Oct. 20. It cut the proportion of deposits banks must hold in reserve by 4 percentage points to the lowest level since 2006.

‘Quite Bleak’

“There’s still scope for rate cuts as the economic picture is quite bleak,” said K. Ramanathan, who manages the equivalent of $2.2 billion in Indian debt at ING Investment Management in Mumbai. “The policy response to the unfolding economic slowdown is quite satisfying.”

China unveiled a 4 trillion-yuan ($585 billion) economic stimulus plan in November, and Premier Wen Jiabao may put forward another package this month to boost an economy that’s set for its slowest growth in two decades. Wen has already increased subsidies for farmers to buy household electronics and cut taxes on property.

South Korea, which has pledged about $30 billion in extra spending, corporate tax breaks and income-tax reductions since September, aims to bring down interest rates and “ease the burden” on households and small businesses, President Lee Myung Bak said yesterday.

Malaysian Rate Cuts

In Malaysia, where the central bank reduced rates in November for the first time since 2003, Prime Minister Abdullah Ahmad Badawi said this week he will introduce more measures if necessary to shore up growth.

“Governments are throwing everything into the system to save it,” said Jason Teh, who helps manage $5.7 billion at Investors Mutual Ltd. in Sydney. “At some point, you’d think the economic benefits will occur.”

Japan, Hong Kong, Singapore and New Zealand are already in recession. The World Bank last month predicted international trade will shrink in 2009 for the first time in more than 25 years. Exports account for about 32 percent of Asia’s gross domestic product, according to the World Bank.

China’s manufacturing declined for a fifth month in December, South Korea’s exports fell by more than 15 percent for a second month, and Australian manufacturing shrank, reports yesterday showed.

Thai Recession Risk

Overseas shipments by India are also falling, and Vietnam this week said its 2008 economic expansion was the weakest in nine years. Among Southeast Asia’s three biggest economies, Thailand says it’s at risk of falling into a recession this quarter, while Indonesia and Malaysia expect growth this year to be the slowest since 2001.

The worst global financial crisis since the Great Depression in the 1930s will deteriorate further, New York University Professor Nouriel Roubini wrote in a Jan. 1 commentary published by Bloomberg News.

In China, where manufacturers in industries from metals to toys are reducing production or closing down, Roubini predicted growth will slow to 5 percent or less this year, and said India will face a “sharp slowdown.”

“As traditional monetary policy becomes ineffective, other unorthodox policies will continue to be used,” Roubini said. Among them will be policies to bail out investors, financial institutions and borrowers, and “massive provision of liquidity” to banks to ease the credit crunch, he said.

BLOOMBERG