Mumbai: Credit Suisse predicts that Asia's projected growth in 2006 and 2007 will remain robust despite tougher external conditions. Strong domestic demand in almost every country in the region will underpin GDP growth, and Credit Suisse has revised upwards its forecast for Asia ex-Japan to 7.8 per cent from 7.7 per cent for 2006, and to 7.5 per cent from 7.4 per cent for 2007.
Credit Suisse maintains a bullish forecast for India, where it expects GDP growth of 8.5 percent this year versus consensus of 7.3 per cent. The main risks to that forecast are rising interest rates and inflation but Credit Suisse remains positive on investment growth, and industrial production data continues to show strong growth across the basic, consumer and intermediate goods sectors.
"Our view on India is more optimistic than the market's in large part because we do not see the constraints on growth many in the market fear," notes the Credit Suisse report.
The main risks to the bank's bullish FY 2006-07 GDP growth forecast are rising interest rates and inflation. On external liquidity, the bank judges India's current account deficit to be sustainable and may have a limited constraint on growth. It notes that although domestic liquidity conditions are tightening, "We believe that fiscal and monetary policy tools on the part of the state governments and central bank are available to inject liquidity into the financial markets in the next six to 12 months."
Credit Suisse remains positive on investment growth and says recent data on industrial Production (IP) indicates strong growth in the basic, consumer, and intermediate goods sectors. "Capital goods IP growth peaked in September 2005 on a year-on-year basis, mainly due to domestic capacity utilisation rates being over 85 per cent and limiting the ability of firms to supply capital goods," the report noted and says it expected capacity ramp-ups to kick-in in H2 2006 and induce a recovery in capital goods IP growth.
The report says that monetary and fiscal policy may work hand-in-hand to stabilise domestic liquidity conditions and sees limited signs of a credit crunch emerging in the next 6-12 months as it expected the RBI to continue injecting liquidity through the repo window.
The bank also expected further capital account liberalisation by end 2006 - early 2007 to help ease liquidity conditions.
Credit Suisse on Asia The revision reflects stronger-than-expected domestic spending in Indonesia, Singapore and Hong Kong, while China and India continue to be the dominant drivers of growth in the region.
Although Credit Suisse has adopted a slightly more negative view on the external environment caused by a continued slowdown in US consumption - and sees some risks related to monetary policy, fundamentals in Asia remain healthy. Overall, the growth momentum for Asia ex-Japan will remain strong in the second half of 2006, inflationary pressure will remain surprisingly benign, and current account surpluses will be larger than previously thought.
In China, monetary tightening will continue, but Credit Suisse notes that government measures to cool the economy is unlikely to be sufficient to alter ample liquidity conditions in the near future. Beijing's preference to keep the RMB exchange rate steady is a major constraint on monetary policy, effectively capping any upside to local interest rates and presenting a fundamental obstacle to draining liquidity.
The bank expects 10.1 per cent GDP growth forecast for 2006, with 188.8.131.52 per cent growth projected for the second half of the year,. says Dong Tao, Credit Suisse's chief regional economist for Asia ex-Japan. .Exports are likely to soften amid weakened US consumption, which should keep Beijing away from drastic tightening, but robust consumption and large investments in infrastructure should offer a cushion for sustained growth..
In South East Asia, Credit Suisse has upgraded the 2006 growth forecast for Singapore to 8.5 per cent year-on-year from 7 per cent, well above the consensus estimate of 6.6 per cent. The revision is mainly due to a sharp rise in forecast investment spending to 8.9 per cent from 6 per cent. Forecast growth for Indonesia this year has also been upgraded to 5.6 per cent from 5 per cent, due mainly to a strong recovery in consumer spending amid easing inflation, falling interest rates and strong growth prospects in Eastern Indonesia.
In Hong Kong, growth in the first quarter of the year hit a surprisingly buoyant 8.2 per cent year-on-year, driven by robust domestic consumption and strong exports, but expansion in the second half will be curtailed by a property market slowdown. Full year growth is expected to reach 5.9 per cent, down from 7.3 per cent in 2005. Credit Suisse anticipates a 10-20 per cent price fall in the residential property market in the second half of 2006, which will drag down economic growth and consumer sentiment.
also see : India: Ample liquidity
to support growth