Be Prepared - Financial Outlook for 2008

Source : Telegraph UK

City experts give us their top predictions

CREDIT SUISSE: ASIA TO WEATHER GLOBAL SLOWDOWN
Dong Tao, chief regional economist for Asia ex-Japan, Credit Suisse

We expect export growth in Asia in the first half of 2008 to be constrained by a substantial fall in G3 growth and a tightening of global credit flows, but the slowdown in the region will be moderated by robust domestic demand.

For the year, the bank downgraded its 2008 growth forecasts for Asia from 8.3pc to 7.8pc, with the biggest adjustment seen from export-dependent South Korea and Taiwan.

This follows a cut in Credit Suisse's G3 growth forecast to 1.5pc from 2pc for 2008, and its US growth projection to 1.5pc from 2.5pc, with most of the slowdown expected to take place between Q4 2007 and Q2 2008.

Inflationary pressures remain a concern in Asia, with Credit Suisse raising inflation forecasts sharply next year for Hong Kong, Singapore, Malaysia, Indonesia and Vietnam.

Asia's exports will be affected by the slowdown but domestic demand in the region remains strong. China seems to be heading for a soft landing; it can provide a buffer to the rest of the world but cannot totally compensate for the decline.

Growth forecasts for China and India were revised down, from 10.2pc to 10pc for the former and from 9.6pc to 8.5pc for the latter, in Credit Suisse's newly published Emerging Markets Quarterly report.

China is well positioned to weather an anticipated G3 slowdown. Factors such as an overheated economy that may have caused concerns previously may stand it in good stead during a downturn.

The growth of exports is expected to slow to 16pc-17pc in 2008 from 27pc in the first ten months of 2007. But the impact on net trade, and hence GDP, will be muted as more than 50pc of export earnings are used to pay for imported materials.

However, there are four major risks to the Bank's forecast: a sudden and sharp fall in the A-share market, a significant policy-induced correction on housing prices, a slow response to a G3 slowdown, and heightened cross-Strait tensions.

On the currency front, Credit Suisse expects a 10pc RMB appreciation against the US dollar in 2008 compared with the 6.23pc year-on-year gain at end-November 2007 and 3.3pc rise in 2006.

In Hong Kong, the Bank expects growth to be driven by private consumption, with GDP growth in 2008 forecast at 4.6pc versus a projected 6pc for 2007.

Residential property prices could rise 20pc-30pc over the next six months, as rising inflation, strong capital inflows, negative real interest rates, and a positive wealth effect generated by the equity market pushes up transaction volumes. Inflation is likely to surprise on the upside, fuelled by strong economic momentum and robust employment conditions.

Other factors driving inflation include high food prices from the mainland, surging commodity prices, rising rents, and rising wages. The Hong Kong dollar peg will remain despite pressure for revaluation.

In Southeast Asia, Vietnam is again expected to lead the region in terms of growth with projections for 2008 of 9.1pc versus a forecast 8.5pc for 2007. The expansion of market share and capacity, the technological upgrade of existing industries, and FDI-driven investment should provide a buffer to a global slowdown but concerns of overheating persist.

Inflation hit a new three-year high of 10pc year-on-year in November 2007 and is forecast to rise to as high as 12pc year-on-year in 2008. Growth in Singapore is likely to moderate to 6pc in 2008 from nearly 8.0pc in 2007, reflecting slow external demand from G3 economies.