World Economy

Asia Can Endure Higher US Rates

The IMF describes the Asian region as the engine of the global economy
Emerging economies like China and India constitute a strong dynamo for global economic growth.Emerging economies like China and India constitute a strong dynamo for global economic growth.

Asia can withstand higher US interest rates and risks of capital outflows and weaker currencies against the US dollar are exaggerated, according to the Asian Development Bank.

"Asia is in a pretty good shape to weather this looming US rate hike,” Donghyun Park, ADB principal economist in Manila, told Bloomberg.

"Emerging markets especially in Asia have relatively robust, strong economic and structural fundamentals. I’m quite optimistic that the effect will be subdued and muted. The risks are quite exaggerated, overstated.”

Central banks in the region have strengthened defenses by building up foreign-exchange reserves and current-account positions since the sell-off that roiled developing nations during the so-called taper tantrum in 2013 when the US Federal Reserve signaled it would wind down bond purchases.

The more vulnerable emerging markets are outside Asia, including Brazil, Russia and Turkey, Park said.

While policymakers in Asia are unlikely to follow the Federal Reserve in raising rates, they would probably refrain from unleashing more stimulus, Park said.

“The growth-supporting power of central banks will be more limited in Asia,” he said. “They would probably stay put rather than cut interest rates further.”

Rapid Urbanization

Many western economies continue to suffer from slow growth—in stark contrast with Asia, where the International Monetary Fund predicts overall growth of more than 5% in 2016-17 and describes the region as "the engine of the global economy."

Asia is urbanizing rapidly as economies develop and incomes rise, meaning that big global brands will increasingly look to Asia as a source of consumers. World Bank research shows that nearly 200 million people in the East Asia and Pacific region—excluding India and its heavily populated neighbors such as Pakistan—moved from the countryside to cities during the decade after 2000.

Meanwhile, the IMF recently pointed out in the World Economic Outlook that emerging economies like China and India constitute a strong dynamo for global economic growth by registering a growth higher than world average.

India with its extensive exports markets will be the first to gain, especially since the early recovery is likely to be concentrated in Asia, which accounts for around half of India exports. In fact most recent numbers on monthly imports show that imports has finally picked up in Asian nations like China, Japan, Korea, Singapore and Malaysia after a long hiatus.

The other positive aspects revealed in the September data is the 7% growth in India's engineering exports which is one of the largest industrial exports from the country.  

China’s GDP growth is projected to be 6.6% in 2016 before moderating to 6.2% in 2017,  the IMF forecast in its newly-released World Economic Outlook and Global Financial Stability Report.

Retail Hub

Asia is home to more than half the world's most dynamic retail hubs, according to new research that reinforces images of the region's mall-strewn megacities.

The research, by professional services and investment management company JLL, says 12 of the fastest-growing retail cities are in Asia, with eight in China alone—another indication that global economic growth is increasingly driven by the Asia-Pacific region.

JLL lists Dubai as the world's fastest-growing retail destination, with Shanghai second and Beijing third. Places 9 to 13 are occupied by Bangkok, Chengdu, Kuala Lumpur, Jakarta and Manila, respectively. Only two European cities make the top 20—Moscow and Istanbul—with none from Africa. Mexico City is the sole city from the western hemisphere, sitting at number 19.

Overall, JLL lists London as the "most attractive" city for retailers, with Hong Kong second and Paris third. Dubai, Singapore, Shanghai, Tokyo and Beijing all make the top 10, with Bangkok, Taipei, Seoul and Osaka in the top 20.

"The search for growth is escalating the penetration of international brands across the world's most attractive retail cities, especially in Asia," said David Zoba, chairman of JLL's Global Retail Leasing Board.


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