Asia to Have 'V-shaped' Recovery, BNP Paribas Says

By Jason Clenfield

Jan. 7 (Bloomberg) -- Asian economic growth, after slowing this year, will probably rebound in 2010 as government spending and interest rate cuts spur demand, BNP Paribas SA said today

Asia, excluding Japan and China, will grow 4.3 percent next year after a 1.4 percent expansion in 2009, Richard Iley, an economist at the bank, wrote in a report. Public spending in China, Taiwan and South Korea, combined with increasingly loose monetary policy, should help to drive a “reasonably vibrant” recovery, he said.

Asian governments are planning more measures to boost growth as a slump in global demand hurts exports, deepening the region's economic slowdown. South Korea has pledged about $30 billion in extra spending and tax cuts since September. China may follow a 4 trillion yuan ($585 billion) spending package announced November with a second plan as early as this month.

“The scale of the global policy response -- monetary and fiscal -- should ensure the recovery is more V than U-shaped,” Iley said. “In many instances, economies will experience a 6 to 7 percentage point swing in growth rates.”

The MSCI AC Asia Pacific Index rose 1.9 percent at 1:43 p.m. in Tokyo today, taking its gain since reaching a five-year low in October to 23 percent.

Iley's report, titled “Asia: Apocalypse Now,” said that before improving, Asia's economic growth would deteriorate in 2009.

“Global industrial production appears to have collapsed at a 30-40 percent annualized rate since September,” he said, referring to the “biggest demand shock since the 1930s.”

Forecast Cut

As a result of the drop in output, BNP Paribas cut its 2008 forecast for Asian economic growth to 1.4 percent from a November prediction of 3.9 percent. The region comprises Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand, according to BNP Paribas.

Iley said China will grow about 7.7 percent in 2009, helped by the November fiscal package “worth an eye-popping” 14 percent of gross domestic product over two years. The economy probably expanded 9.3 percent in 2008, slowing from 11.9 percent the year before. He predicted 8.1 percent growth in 2010.

Hong Kong will grow 3.5 percent in 2010 after shrinking 3.4 percent this year, the bank predicted. Taiwan will expand 3.9 percent after contracting 3.3 percent; Singapore will grow 4.4 percent after declining 2.8 percent this year. South Korea will expand 3.2 percent, rebounding from a 2.4 percent contraction.

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net