Why 2013 May Not Be a Great Year for Asian Economies
Writer CNBC.com Asia
The recent slew of manufacturing data suggest Asian economies are on the path to recovery after a year of slowing growth, but economists warn it might be too early for celebration.
Latest purchasing managers' indices show factory activity picked up in October from earlier lows in China, South Korea, Indonesia and India, but experts caution that unless there is sustained improvement in the manufacturing sector a rebound in the region's economies is unlikely next year.
"I think in 2013, Asian economies will just muddle through. I think people are expecting that growth is not going to be very strong," said Manpreet Gill, senior investment strategist with Standard Chartered in Singapore.
(Read more: Asian Factory Sector Shows Signs of Slow Recovery)
He added that "a lot of it (economic growth) will depend on what happens in China and the United States, for example, if we do go over the 'fiscal cliff,' that is clearly not going to be good for Asian exports."
Exports Hold the Key
Exports are a key engine of growth for Asian economies, accounting for as much as 35 percent of gross domestic product (GDP), according to data from the World Bank. A slowdown in Europe, the U.S. and China this year has therefore had an impact on Asian exports and growth, with few signs that the developed Western economies will be out of the doldrums soon.
Exports from economies across the region, including Singapore, Indonesia and South Korea, have declined for the past five months.
At the same time, the looming "fiscal cliff" in the U.S. could push the world's biggest economy into a recession further hurting Asian exports.
The "fiscal cliff" refers to a combination of tax cuts and spending hikes that are due to kick in at the start of 2013 unless Congress takes action.
(Read more: Why CEOs Are on the Fiscal Cliff Warpath)
"We believe a strong rebound in exports will be difficult, considering the outlook for domestic demand in the U.S. and Europe. The most immediate concern on the horizon is the U.S. 'fiscal cliff' and its impact on fourth quarter and first quarter 2013 GDP growth," Morgan Stanley economist Chetan Ahya wrote in a report published on Thursday.
Weaker than expected exports and continued global risks is why the International Monetary Fund cut its projections for GDP growth for the developing Asia this year to 6.7 percent in October from 7.1 percent in July. The institution also reduced growth forecast for next year to 7.2 percent from 7.5 percent.
Economists said the region's policymakers could come up with measures to boost domestic demand but that would work only in the short-term. The most important element for regional growth still remains exports, according to Jonathan Reoch, AMP Capital's head of Asian equities, excluding Greater China.
"I don't believe we will see a strong rebound in 2013 as structural factors in the developed world will mean generally sub-par growth, with prospects for shocks to confidence," Reoch said. "Asian exports need the world to stimulate growth thus the current sweet spot may not last for that long."
—By CNBC's Jean Chua