Asia faces sharper slowdown next year: Morgan Stanley

SINGAPORE: Asia is staring at a much sharper economic slowdown next year than earlier anticipated because of a deepening global recession, US bank Morgan Stanley said on Tuesday.

The region is now expected to grow by 5.5 per cent in 2009 instead of a previously forecast 6.4 per cent, said Chetan Ahya, a Morgan Stanley economist for Southeast Asia and India.

Australia, South Korea, India and Indonesia will be vulnerable to financial contagion because of large current account deficits, while export-dependent countries will also suffer, he said at a news conference.

While downside risks could further drag the forecast growth rate to below 5.0 per cent, it is unlikely to drop near the 2.4 per cent expansion rate seen during the Asian financial crisis in 1997 and 1998, he said.

"The risk right now is it could dip below 5.0 per cent," but not close to the levels of a decade ago, he said.

Ahya added that in 1997 and 1998 the gross domestic product (GDP) of five key Asian economies contracted between 4.0 and 13 per cent, a situation which is unlikely during the current turmoil.



Ahya said the US economy is likely to shrink by 1.3 per cent next year and the European economy should contract by 0.6 per cent, more drastic than earlier projections.

Because of this, "Asia is unlikely to emerge unscathed in an environment where the global economy is likely to see a deeper recession," Morgan Stanley the bank said in a report.