Asia Growth to Be Hurt by Slower Exports, Walker Says

By Karl Lester M. Yap and Max Estayo

Oct. 30 (Bloomberg) -- Asian economies should focus on boosting domestic demand to spur growth amid weak global trade, said Jim Walker, managing director of Asianomics Ltd.

Asia’s growth rates in the next three years will be lower than the last decade, and demand from the U.S. and Europe is expected to still be weak, Walker told reporters after speaking at a conference in Manila today. The global economy “still has a lot of problems” and the recovery will not be as fast as some predict, he said.

The International Monetary Fund said yesterday Asia is “rebounding fast” from the global crisis, and governments must maintain fiscal support due to sluggish world export demand. The World Trade Organization predicts the volume of global trade in goods may contract by more than 10 percent this year.

“Asian governments should start moving more towards domestic demand to allow domestic industries to grow versus export industries,” Walker said.

Asian policy makers have pumped more than $950 billion into their economies by cutting taxes, distributing cash and boosting spending after the global credit crunch cut world demand for the region’s exports from cars to flat-panel televisions.

The rebound in shipments may be slow as consumer spending in the U.S. and Europe is “likely to remain weak for some time,” the IMF said. “Asia’s longer-term growth prospects may be determined by its ability to recalibrate the drivers of growth to allow domestic sources to play a more dynamic role.”

‘Flight to Safety’

The U.S. dollar may gain in the next 12 months amid a “flight to safety,” Walker said today. He recommended investors hedge against the euro over the next five years, predicting an “unraveling” of the currency.

The trade-weighted Dollar Index has fallen 6.7 percent this year, while the euro has gained about 6.3 percent against its U.S. counterpart in the same period.

People will shift to the dollar when they “realize economic growth is not going to be strong as expected,” Walker told reporters. “Countries and regions challenging the dollar must have dominant economies.”

The U.S. Federal Reserve has cut interest rates “too far” and other nations shouldn’t follow its policy, Walker said. The U.S. central bank has retained a commitment to keep rates near zero for an “extended period.”

Higher interest rates are “essential” for the global economy, he said.

“The quicker the policy is reversed, the better for the global economy,” Walker said.

To contact the reporters on this story: Karl Lester M. Yap in Manila at kyap5@bloomberg.net; Max Estayo in Manila at mestayo@bloomberg.net