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Spring coming soon for Asian economies

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Published : 2014-03-13 20:23
Updated : 2014-03-13 20:23

The chaos in Ukraine gave markets a brief scare last week, but they soon shrugged it off as a distraction amid signs of improvement in the global economy.

As March progresses and the paralyzing effects of the unusually wintry weather in the United States dissipate, the clouds are clearing from the economic outlook, especially in Asia.

Malaysia last week reported another double-digit jump in exports for January ― led by higher shipments of electronics, liquefied natural gas and metals ― as well as a continuing trade surplus. Both export growth and the trade surplus narrowed from December, but economists believe shipments will continue to grow.

Separately, Prime Minister Najib Razak also reiterated his commitment to fiscal discipline, indicating that Malaysia is still focused on getting its balance sheet in order.

“We take this as a signal that the government will continue with subsidy rationalization, despite rising public pressures and unhappiness over inflation,” said Bank of America Merrill Lynch economist Chua Hak Bin.

Singapore also last week posted stronger-than-expected factory activity last month, with economists tipping a ramp-up in manufacturing from next month.

And India, in a stunning turnaround, dramatically narrowed its current account deficit ― the shortfall between what it sells to other nations and what it buys from them ― to just 0.9 percent of gross domestic product in the fourth quarter of last year, from 6.5 percent the year before.

In response, Indian shares hit record highs last week. The rupee has also risen some 7 percent against the greenback in the last six months, as investors refocus on the country’s favorable demographics and growth potential.

“India has come a long way in terms of reducing its external vulnerabilities,” said HSBC economist Leif Eskesen, calling the shrinking of the current account deficit “quite an achievement.”

These efforts by Asian economies to straighten out their finances are likely to boost their resilience in future crises.

A study last week by the Federal Reserve Bank of San Francisco in the United States found, unsurprisingly, that emerging economies with weaker domestic fundamentals ― such as big current account or fiscal deficits ― are more vulnerable to capital flight.

Importantly, the efforts also put Asian economies in a good position to benefit from anticipated stronger demand from the West as spring arrives.

Recent data from the U.S. and Europe looks promising after the freezing winter, said Deutsche Bank’s chief Asia economist Taimur Baig.

“While it is now clear that weather had a tangible effect on U.S. activities in late 2013 and early 2014, the drag could well be short-lived and a sizeable rise in jobs, consumption and housing may be around the corner,” he noted.

In Europe, production and business sentiment continue to rise, although fears of deflation still persist, Baig added.

“These are important developments for our Asia view, which continues to hinge on a strong pick-up in external demand this year,” he said.

“Along with tame inflation, if trade data from February onward begins to improve across the board, Asia will find its footing again.”

By Fiona Chan

Fiona Chan is a senior economics correspondent at The Straits Times. ― Ed. 

(The Straits Times)

(Asia News Network)

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