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Subdued Recovery In Asia In 2013

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Asian economies will likely grow faster in 2013 than the previous year, but the pace of expansion will remain subdued largely because of a weaker-than-expected recovery in China, a Reuters poll showed.

Growth estimates for 2013 have either been cut or left unchanged for the majority of the region's economies in the latest poll of over 250 economists conducted between April 8-11 and April 16-19.

While China, South Korea, India and Australia bore the brunt of the downgrades ranging from 0.1 percentage point to one percent, estimates for Thailand, Hong Kong, Malaysia and Taiwan were upgraded in the poll.

Still, those growth rates are much higher than what developed economies are expected to clock this year. The US economy will likely average 2 per cent growth this year, while the euro zone is expected to go through another recession in 2013.

"This year is going to be a good growth year for Asia, particularly if ...we start to see global growth improving in the second half of the year," said Rob Subbaraman, chief economist for Asia at Nomura in Hong Kong.

But risks to even modest growth projections are aplenty. Much depends on how China performs this year, whether the U.S. economy manages to grow at a stronger pace and whether the euro zone can contain its three-year old debt crisis.

China's economic growth is forecast to pick up slightly to 8.0 per cent in 2013, after an unexpected slowdown in the first quarter that forced economists to lower their earlier predictions.

And, after a strong start to the year, the US economy is set to slow as some of the effects of government spending cuts take hold. Still, the labor market is expected to continue healing this year, even after last month's disappointingly weak job gains.

The Indian economy is expected to remain subdued this year and any recovery will be gradual as government spending and interest rate cuts from the Reserve Bank of India revive domestic demand.

A separate poll of over 60 economists showed last week that the world economy is expected to grow 3.2 per cent this year from an expected 3.1 percent expansion in 2012.

Commodity Soft Patch
Analysts said the recent fall in commodity prices will help Asian economies which are some of the biggest importers of oil, base and precious metals like iron and gold respectively.

Indeed, inflation forecasts for many economies were scaled back in the poll, which should help central banks keep monetary policy accommodative.

"Even with Asian exports being quite soft at the moment its been buffered, in the coming months, by cheaper commodities that Asia will import," Subbaraman added.

Softer commodity prices will give Asian central banks room to loosen policy since they have had their hands tied until recently due to stubborn inflation.

Indeed, the poll suggested major central banks in emerging Asia will either ease monetary policy this year or leave interest rates unchanged but economists flagged the risks of rising debt levels as a hindrance.

"Worries over rising private debts may limit the monetary policy response in some Asian emerging market countries if growth undershoots this year," wrote analysts at Citi in a research note to clients.

After leaving it on hold for nine months, India's central bank cut its key repo rate twice this year by 25 basis points each and is expected to cut by another 50 basis points to 7 percent by September this year as inflationary pressures recede.

However, the Reserve Bank of India will be restrained by a wide current account deficit to ease any further, a constraint shared by its peer in Indonesia. Bank Indonesia is expected to leave rates unchanged for most of the year.

But Subbaraman warned excessive monetary policy easing could hurt the region.

"The risk for Asia is if policymakers are too short sighted and do not focus on the financial imbalances and asset prices, and keep policies very loose. It will be good for growth this year but it does raise the risk of problems down the road."