Asia economic growth to surprise on upside before dipping: Barclays

Barclays Capital said Asia’s economic growth this year should surprise on the upside, before dipping slightly next year as fiscal stimulus policies are slowly removed.

Barclays also said it is optimistic about Singapore’s growth but warned that higher business costs is still a cause for concern.

Asian economies are expected hit about 8.8 percent on average this year, up 0.7 percentage point from Barclay’s previous forecast.

This is due to strong first quarter numbers for manufacturing and GDP growth across the region.

But growth may slow to 7.6 percent next year, as the market experiences a mid-cycle slowdown.

Barclays said this is because the factors that drove the V-shaped economic recovery last year will likely dissipate.

Peter Redward, Barclays Capital’s head of Emerging Asia Research, said: “Fiscal stimulus, which has been very strong, will be softer in 2011, taking away maybe half a percent of GDP; and the manufacturing production side, which has been very strong, coming from the rebound in production.

“And the need to rebuild inventories in the wake of the 2008 collapse, that impulse is really behind us now.”

But Barclays suggests a moderation in economic activity to more sustainable levels will be healthy.

As for Singapore, it said the country’s GDP growth should mirror the rest of Asia.

Barclays is predicting that Singapore’s economy will grow 9.5 percent this year, higher than its previous forecast of 8.5%.

But the biggest headwind for Singapore’s growth is an expected rise in business costs.

“The largest component being wages, which accounts for about 25 to 27 percent of business costs in Singapore. We’re going to have basically, the foreign worker levies being raised from July onwards, employers paying more CPF contributions, and on top of that, a general tightening of labour markets,” said Leong Wai Ho, senior regional economist at Barclays Capital.

Barclays expects inflation in Singapore to rise due to price increases from things like higher electricity tariffs.

CNA

Tags: Asia economic growth