Press Release 2012
UOB says growth in Asia economies to moderate in 2012 but region well-positioned to meet global challenges
Investments still flowing into Asia; growth to improve in second half of the year
Kuala Lumpur, 18 January 2012 - United Overseas Bank (UOB) said that while growth in key Asian economies was expected to slow down in 2012, the region was well-positioned to manage the effects of economic malaise coming out of Europe and the United States.
Mr Jimmy Koh, Head of Research and Investor Relations, UOB Group said Asia's preparedness was a direct result of local economies having been buoyed by the growing wealth in Asia and from stronger corporate balance sheets following lessons of the Asian financial and 2008 global crises.
"Asia has managed to stay buoyant in the recent choppy waters. Investors across the globe are still looking to Asia as a harbour of decent investment returns. This is because Asia has transformed itself dramatically since the 1998 Asian financial crisis and has used lessons learned to adjust dynamically and quickly to the current financial headwinds coming from Europe and the US.
"While liquidity continues to flow into Asia there remain two factors that could change Asia's outlook materially in 2012 - employment and borrowing costs. Both of these have been stable so far but any change in a negative direction will affect growth projections."
Impact on Asia's growth outlook in 2012
While global growth continues to gravitate towards Asia, the impact of global economic malaise in Asia was unavoidable. UOB forecasts that growth rates of most Asian countries would moderate in 2012.
Malaysia's economy is expected to moderate to 3.9% in 2012, compared with a forecast growth rate of 4.8% in 2011. While global uncertainties could dampen demand for Malaysia's export, the government's Economic Transformation Program will help underpin moderate growth.
Other key Asian economies are also expected to experience a decline in growth despite the improving economic fundamentals in the region. UOB expects a soft landing in China in 2012. However, a possible cool-down in China's property market and the rise of an "informal" loan market could impact China's economic growth. While these risks are manageable given China's large financial resources, economic growth is likely to be constrained in the first half of the year and growth will be seen in the second half, the annual growth rate will be about 8% (compared with 9.2% in 2011).
The key question for 2012 is whether Asia will suffer a financial shock or economic slowdown in the face of the European sovereign debt crisis.
Mr Koh said: "More than 1 trillion euros of refinancing is due in 2012, and bulk of it in the first half of 2012. While we expect Asia to be resilient enough to withstand the impact from Europe, Asia could see weaker equity prices and currencies in the first half of the 2012."
Interest rate outlook and foreign exchange outlook
UOB also forecasts that interest rates are likely to remain low in 2012, mirroring interest rates in the United States. The Bank expects a total of 50 basis point rate cut on Bank Negara Malaysia's Overnight Policy Rate to 2.50% by year end.
UOB also expects that changes in the global financial landscape may cause the Malaysia Ringgit (MYR) to experience a fair degree of volatility in 2012. UOB forecasts the MYR to weaken to 3.20 against the US dollar by the end of first quarter 2012. The Bank's expectations are that the MYR should recover towards the end of the year, and end at 3.09 against the US dollar. However, the MYR may continue to weaken against the US dollar if there is another financial shock from Europe.