Hong Kong, Vietnam Signal Slowing Growth on Global Risks

 By Karl Lester M. Yap and Stephanie Tong

July 09, 2012

Hong Kong and Vietnam signaled growth may fall short of government forecasts this year as Asian policy makers stepped up efforts to protect their economies and currency markets from the worsening global outlook. 

Hong Kong may revise its 2012 economic forecast next month, Financial Secretary John Tsang said on July 7. In Vietnam, Deputy Prime Minister Vu Van Ninh said the country may miss its growth target and the central bank told lenders to cut borrowing costs on existing loans to help businesses. The Philippines unveiled plans to contain currency gains that may hurt exports.

Interest-rate cuts by central banks in China and Europe last week underscore the risks to the world economy as the euro area’s fiscal crisis deepens, U.S. employment gains falter and Asia’s expansion slows. The International Monetary Fund will reduce its estimate for global growth this year, Managing Director Christine Lagarde said July 6 ahead of the publication of the lender’s updated economic outlook next week.
“Given the ongoing deterioration in Eurozone and U.S. growth indicators in recent months, there is little prospect for a material improvement” in emerging market exports while domestic demand also “looks set to remain soft in the near- term,” Nick Chamie, global head of foreign-exchange strategy at Royal Bank of Canada in Toronto, said in a July 6 note. “We see further evidence that growth weakness will extend well into” the third quarter.

The bank cut its aggregate growth forecast for emerging markets this year to a “very weak” 4.7 percent from 5.5 percent, Chamie wrote.

Indonesia Growth

Indonesia’s economy may expand 6.3 percent “or less” in the second quarter as export demand falls amid Europe’s debt crisis, President Susilo Bambang Yudhoyono told reporters today in Jakarta after meeting with Czech Republic President Vaclav Klaus. That compares with the central bank’s forecast of 6.3 percent to 6.7 percent in the period.

The MSCI Emerging Markets Index (MXEF) lost 1 percent on July 6, trimming its weekly advance to 0.9 percent as Chinese and European interest-rate cuts failed to bolster investor confidence and U.S. payrolls rose less than forecast.

The IMF estimated global growth of 3.5 percent for 2012 in its April World Economic Outlook Update. New forecasts and a report will be released on July 16.

“Over the past few months, the outlook has regrettably become more worrisome,” Lagarde said in Tokyo. “Many indicators of economic activity -- investment, employment, manufacturing -- have deteriorated. And not just in Europe or the United States.”

China Rates

China’s central bank on July 5 announced the second cut in benchmark interest rates in a month ahead of a government report this week that may show economic growth slid to the lowest in three years. The European Central Bank the same day reduced its main rate to a record low of 0.75 percent and took its deposit rate to zero, with President Mario Draghi saying “downside risks to the euro-area economic outlook have materialized.”

A reduction in growth estimates by the IMF would have an impact on Hong Kong “because we are a small and externally- oriented economy,” Tsang told reporters on July 7, according to a government transcript. “We rely a great deal on our traditional markets in Europe and America. Meanwhile, countries in Asia have also been slowing down.”

The government estimated in February economic expansion would drop to 1 percent to 3 percent this year from 5 percent in 2011 and 7 percent the previous year. Tsang said he would make an assessment next month whether the forecast needs to be adjusted.

Viet Nam

China’s growth may have slid to 7.7 percent in the second quarter from a year earlier, according to the median estimate in a Bloomberg News survey. The statistics bureau is due to release the data on July 13.
In Vietnam, Vu Van Ninh told bankers on July 7 the economy faces many problems due to a slowdown in domestic and global markets and that it will be “extremely difficult” to meet this year’s 6 percent growth target.

The nation’s central bank Governor Nguyen Van Binh said the same day that commercial banks should lower borrowing costs for existing loans to companies and help businesses struggling in the slowing economy. The State Bank of Vietnam cut interest rates on June 29 for the fifth time this year to spur growth. The reduction only applied to new loans.

Philippines

In the Philippines, the central bank said it will prohibit foreign funds from investing in its special deposit accounts to stem gains in the peso, the best performer this year among Asia’s 11 most-traded currencies tracked by Bloomberg.

Capital has poured into the country this year as economic growth outpaced other Southeast Asian economies and on anticipation the nation’s credit rating will be raised to investment grade status. The benchmark Philippine stock exchange index surged to a record last week. 

Capital flows are complicating monetary policy, Diwa Guinigundo, deputy governor of Bangko Sentral ng Pilipinas, told reporters on July 7. The central bank may consider other tools to manage flows as a sustained and large-scale easing in the U.S. and Europe will drive funds to search for higher yields in emerging markets, Guinigundo said. 

To contact the reporter on this story: Karl Lester M. Yap in Manila at kyap5@bloomberg.net; Stephanie Tong in Hong Kong at stong17@bloomberg.net. 

To contact the editor responsible for this story: Stephanie Phang in Singapore at sphang@bloomberg.net