SINGAPORE, July 2: Asia is recovering from the global economic slowdown but it needs a surge in worldwide capital spending for the growth to be sustained, European investment bank UBS Warburg said on Tuesday.
At present, the region is relying too much on the spending of consumers in the United States, bank deputy chief economist Paul Donovan said.
While US consumer spending remains strong, signs are emerging that Americans were setting aside more money to repay debt, he told UBS Warburg’s global 2002 conference here.
“While Asia is a likely beneficiary of developments in the US and, to a lesser extent, in Europe and Japan, sustained growth is untenable if unaccompanied by an increase in capital spending globally, Donovan said.
In the US, there are already indications that the consumer is beginning to repay debt rather than continuing to consume.
Consumer spending, which accounts for two-thirds of economic activity in the United States, is not going to be the driver of growth for the world’s biggest economy, Donovan said.
The consumer is not going to be the driving force behind this recovery, he said.
It is going to be very difficult to persuade consumers to accelerate their level of consumption when they are already spending so much money. The fate of Asian economies hinged on the ability of US policymakers to encourage a gradual improvement in capital spending, Donovan said.
At the same time, US consumers must not under any circumstances spend any less.
In its July report card for Asia, the bank said regional economies were growing steadily on the back of firmer domestic demand, except for Hong Kong and Singapore where private consumption failed to make a positive contribution to growth.
Domestic demand has either recovered or the foundations for such a recovery are in place.
For the rest of the year, regional economic growth was likely to be less buoyant, the bank said.
We expect the growth profile for Asia to be more broadbased than in the first half but more restrained than in previous business cycle upturns, it said.
Our export growth forecasts for the region build in a modest acceleration in the second half, but upside surprises from these levels will be few.—AFP