Asia Can Save World From 'Double Dip': Strategist
Asian economies – including China – have enough firepower to pull the world out of recession if a global double-dip recession occurs, according to Anthony Chan, Asia sovereign strategist at AllianceBernstein.
Chan wrote in a blog post that Asian countries still have room to stimulate their economies should the global economy slump as it did during the 2008 financial crisis.
“On the monetary policy front, we think central banks in the region have room to cut interest rates and stimulate their economies, since real interest rates are high,” said Chan.
“Currently, real rates outside of China stand at around 0.5 percent to 1.2 percent, but we expect disinflationary pressures to continue, which would further increase the policy flexibility of countries across the region,” he said.
According to AllianceBernstein calculations, China’s one-year lending rate stands at 3.16 percent in real terms, with Indonesia’s real rate at 1.25 percent and Malaysia’s at 0.95 percent.
Chan said the region’s countries – in particular, China, Singapore and South Korea – have scope for fiscal as well as monetary stimulus.
“China’s budget deficit was only a modest 1percent of GDPin 2011, which leaves plenty of room to pursue the ‘proactive fiscal policy’ referred to in recent policy statements,” he said.
“Given that China still has a long way to go before reaching a mature stage of economic development, we think there is plenty of room for the government to rev up demand by ‘fast tracking’ new major investment projects if necessary,” he added.
Chan warned however that Asian countries do not have the same amount of fiscal and monetary firepower at their disposal as during the 2008 crisis.
“Most Asian economies are more highly leveraged than they were in 2008, with a significant rise in loan-to-GDP ratios in recent years,” he said. “The fiscal positions of most countries in Asia are much worse than they were just before the collapse of Lehman Brothers in 2008. Hong Kong and Singapore are the only countries in the region expected to enjoy budget surpluses in 2012.”
Marc Faber, the famously bearish economist and author of the Boom, Gloom & Doom newsletter, said on Friday that he is “100 percent” certain the world is heading for a double dip recession.
“I think we could have a global recession either in the fourth quarter or early 2013," Faber told CNBC’s “Fast Money Halftime Report”.
— By CNBC.com's Katy Barnato
