Upbeat start to the year for Asian economies

ASIA BRIEFING:SOME OF Asia’s lead economies have reported an upbeat start to the year, including regional giant Japan. However, sluggish growth in China and fears that a weak Europe would damage exports from the region have cast a pall over the data.

China may have ousted its neighbour and regional rival as the world’s second largest economy a couple of years back, but Japan is a much richer country on a per capita basis, it has a far more open economy and it remains a regional powerhouse.

Long considered the sick man of Asia, Japanese gross domestic product (GDP) rose 1 per cent in the first quarter of the year, despite the ongoing strength of the yen and Europe’s debt crisis. The economy was lifted by consumer spending and reconstruction after the earthquake in March last year.

Economic expansion came after stagnation in the last three months of 2011 and was slightly ahead of forecasts. On an annualised basis, GDP rose 4.1 per cent, considerably more robust than the 3.5 per cent increase expected by economists.

The outlook for the second half understandably remains unclear, given market fears over Europe’s prospects. Even though consumer spending is strong, Japan is heavily reliant on exports, like so many Asian economies. The country will also be watching to see what happens in China.

Certainly, a raft of wobbly figures for April won’t inspire too much confidence. China’s economic growth is forecast to weigh in at a 13-year low this year on the back of sluggish April data, including weak trade figures and the lowest industrial production growth in three years.

“The weaker-than-expected April data and the downside risk associated with the euro zone crisis will likely prompt the government to ease policy further to support growth at home,” said Wang Tao, a strategist at UBS China.

“Nevertheless, policy action has been rather modest so far and additional effort will take time to have real impact. As a result, we have downgraded Q2 [second quarter] 2012 GDP growth from 8.4 per cent to 8 per cent, and the annual GDP growth from 8.5 per cent to 8.2 per cent,” she said.

A sharp deterioration in the euro zone would lead to growth of about 7 per cent in China.

Looking forward, the outlook is far less grim. In a Bloomberg poll, analysts believe China’s economic growth is likely to accelerate in the third quarter for the first time in seven quarters after banks’ reserve requirements were cut.

Forecasts are for GDP expanding by 8.2 per cent this year, the slowest rate of expansion since 7.6 per cent in 1999 and down from 9.2 per cent in 2011.