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Asian economies to grow at lacklustre pace in 2015
[BENGALURU] Emerging Asian economies will grow at a lacklustre pace this year and next, held back by a slowdown in China and weak global demand, while cooling inflation will probably throw open the door for monetary policy easing, a Reuters poll showed.
Much will depend on how China performs as demand for raw materials from its vast factory sector and for finished goods from its massive population could alter the growth trajectory of regional trade partners.
China's growth rate will probably slow further to 7.0 per cent this year from 7.4 per cent in 2014, restrained by weak lending and a housing slump, according to a Reuters quarterly global economic outlook, published as world leaders meet at the World Economic Forum in Davos, Switzerland.
That slowdown in the world's second-largest economy is likely to prompt more stimulus and interest rate cuts from China's central bank later this year.
China's manufacturing growth stalled for a second straight month in January, data showed on Friday. Companies had to cut prices at a faster clip to win new business, adding to worries about deflationary pressures.
A faltering eurozone and China coupled with disinflation posed the biggest threat to the global economy this year, economists in a Reuters poll said last week.
They predicted global growth was likely to average 3.5 per cent this year and 3.8 per cent in 2016, unchanged from October's forecasts.
Rapidly cooling inflation around the world, thanks to a spectacular 60 per cent drop in global crude oil prices since June, has forced major central banks to ease policy.
The European Central Bank announced a quantitative easing programme on Thursday to buy 60 billion euros of sovereign bonds and private securities each month from March through September 2016, although economists polled soon after said that won't help bring inflation up to target.
They also predict the ECB will have to extend the intended timeframe to beyond September next year - something entirely possible if the Bank of Japan's QE programme is any guide.
Japan has spent trillions of yen over more than a decade with little success so far in raising inflation. Yet more stimulus is expected later this year.
While economists slightly upgraded 2015 growth projections for most East Asian economies in the latest poll, weak consumer demand and credit growth could thwart a swift recovery.
"The combination of slowing consumer credit growth and, in several economies, falling property prices could curb private consumption this year, trimming the windfall to households from the sharp decline in oil prices," said Benjamin Shatil, an economist at JP Morgan.
Australia is expected to report sharply lower growth this year, owing to steep falls in prices of its major commodity exports, notably iron ore.
And inflation is forecast to cool this year throughout Asia, compared with expectations just three months ago, with price rises decelerating to below 2 per cent on an annual basis in New Zealand, Singapore, South Korea and Taiwan.
While that would surely come as good news to consumers burdened with high inflation and interest rates for most of the past half decade, if sustained it could hurt factories, hit corporate profits and in turn lead to weak pay growth.
The cooling inflation trend, coupled with weak growth, has raised prospects of policy easing from regional central banks.
"With oil prices continuing to tumble and incoming inflation prints surprising on the downside, the prospects for monetary easing in emerging Asia have risen," said Mr Shatil.
India's central bank will probably cut its benchmark repo rate by 50 basis points in the next quarter after a surprise cut this month. In a year, the lending rate is predicted to have been slashed to 7.00 per cent from 7.75 per cent now.
South Korea is also expected to cut its key rate by March.