An HSBC global research report titled Asian Economics Quarterly: Feelin’ deflated has argued the region is becoming increasingly vulnerable to deflation.
HSBC co-heads of asian economic research, and report contributors Qu Hongbin and Frederic Neumann, contended the region is “all a bit soggy”.
“Growth across Asia is well down from its recent highs,” said Mr Hongbin and Mr Neumann.
“After 10 years of excellent performance – barring the wobble during the global financial crisis – the region is expanding no faster than in the early 2000s, a period when many economies were still grappling with the consequence of prior financial turmoil,” the report said.
“No surprise then that inflation continues to tumble and central banks are easing policy throughout Asia.
“As inflation decelerates the burden of credit is climbing, something that even cuts in interest rates will not fully offset.
“Debt has again increased to lofty levels – not everywhere, it’s true, but certainly in the larger economies that drive Asia’s growth.”
The region’s export industry is lacking momentum, consumption has slowed and investment, particularly in China, is decelerating, the report stated.
According to HSBC, an aggressive monetary policy is needed to mitigate the risks associated with a depreciating inflation rate.
The report noted key questions policy should consider.
“How much lower will inflation fall in Asia,” it stated
“Will the region dip its toe – or even take an outright plunge – into deflation? Is falling inflation really a problem?
“Have central banks room to ease further? And, if they do, will it make a difference?
“[HSBC] expect[s] further and more aggressive monetary policy easing from the PBoC in the coming quarters to stave off the risk of too-low inflation [and] all the problems that entails,” the report concluded.
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