Tuesday, March 20, 2012

Modest recession in Europe to have mild impact on Asia-Pac

SINGAPORE: A modest recession in Europe in 2012 will have mild impact on Asia Pacific, according to Ernst & Young's Eurozone Spring Forecast (EEF).

EEF is forecasting a slight fall in Eurozone GDP of 0.5 per cent this year, with nine of the 17 Eurozone members' economies set to contract.

However, EEF expects Eurozone GDP to grow by about one per cent in 2013 before picking up to two per cent a year in 2015-16.

Ernst & Young said the European Central Bank (ECB) has to continue to play a central role by being prepared to cut interest rates further and purchasing government bonds in peripheral countries.

The accounting firm added that despite the uncertainties in Europe, overall GDP growth in emerging Asia is still forecast at 6.5 per cent in 2012, down slightly from the estimated seven per cent in 2011.

GDP growth could rebound to 7.5 per cent in 2013 as the slow recovery expected in the Eurozone and stronger US growth help to boost performance in China, India and major economies in the region.

Ernst & Young's managing partner for Asia-Pacific markets, Gerard Dalbosco, said: "Although banks in Asia and credit conditions generally may not be directly affected by Europe's banking sector problems, there will be knock-on effects that will slow credit growth in some Asian markets. But many countries in the region are now relaxing monetary policy, which will help to offset the threat from the mild recession in Europe, and intra-Asian trade and capital flows remain solid. In addition, domestic demand in China and some other Asian countries remains robust."

Ernst & Young said the expected slowdown in China and India will have an impact on export demand and business and consumer confidence in the region.

But commodity prices are likely to remain relatively high in real terms, helping to support activity and state spending in many of the region's economies despite the adverse effect on consumer demand.

Ernst & Young added that unless oil prices spike significantly from current levels, the continued strength of domestic demand in many of the economies should shield Asia-Pacific from the recession in Europe, especially if demand continues to hold up in the US and markets like Latin America and Africa, both of which have increasing trade and investment links with Asia.

- CNA/fa

View the original article here

Source Form Channel News Asia

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