Optimism about the global economy's rebound continues to improve although it remains fractured, with Asia, especially China, seeing growth while the western economies lag. The upswing in emerging Asia is expected to remain relatively strong over the coming quarters although the trade-dependent economies will probably be held back by the long drawn-out recoveries that are likely in the developed world.

Besides China and India, the so-called "four Asian tigers" - South Korea, Taiwan, Singapore and Hong Kong - are well placed to continue with their out-performance in the months ahead. South Korea's strong links to China should offset the drag from high household debt levels. On the other hand, Taiwan's lingering deflation fears are likely to keep policy rates accommodative for a prolonged period of time. Singapore's domestic demand should increasingly lead its upswing, while the biggest threat to the positive outlook in Hong Kong is the rapid development of asset price bubbles.

South Korea

South Korea's export-driven economy is the fourth largest in Asia and the 15th largest in the world. The economy has avoided a recession as the central bank cut its main interest rate by 3.25 per cent in the five months to February 2009 and has kept it at two per cent since then to spur growth. A stimulus package of $135 billion was also provided by the government to help struggling banks. The economy expanded by 2.6 per cent in the second quarter of 2009, its fastest pace in almost six years and a further 2.9 per cent in the third quarter of 2009.

Economic fundamentals are likely to remain in South Korea's favour this year, with the Organisation for Economic Cooperation and Development (OECD) projecting a growth of four per cent in 2010. Furthermore, a recovery in business investment, a positive or less-negative wealth effect from the rise in asset prices and its close ties to booming China should support its economy. Since inflation is expected to rise in 2010, the Bank of Korea is expected to increase rates in the earlier part of the year.


Taiwan is also an export-driven economy with a substantial trade surplus. The country's foreign reserves are ranked fourth in the world after China, Japan and Russia. Economic activity in Taiwan gathered traction towards the end of Q3 2009, with the consumer confidence index recovering from the bottom recorded in February 2009. While, headline inflation fell in October for a fifth month, Taiwan's central bank is concerned about the excess liquidity and warned against the risk of a housing bubble and nonperforming loans. The central bank has already banned foreign investors from placing funds in time deposits, in order to curb hot money inflows and currency speculation.

The very loose fiscal policy may start to be unwound in Q2 2010. Meanwhile, the Economic Cooperation Framework Agreement signed with China in November 2009 should yield benefits to Taiwan's economy as financial institutions on both sides will be able to apply for new businesses. According to the International Monetary Fund, real Gross Domestic Product is expected to grow by 3.7 per cent in 2010.


Singapore is Asia's most open economy and is rated "AAA" by all three main rating agencies. Manufacturing and financial services are the twin engines of the economy. The rapidly growing economy of India, especially the high technology sector, is becoming an expanding source of foreign investment for Singapore. Despite its small size, Singapore is currently the 15th-largest trading partner of the United States.

Singapore was the first country in Asia to sink into recession in 2008. The government unveiled a multibillion dollar plan to boost spending and cut taxes in a bid to ease the worst recession in history. This spending has widened last year's fiscal deficit to a record and was partly paid for by tapping SG$4.9 billion of reserves. In November 2009 Singapore declared that the recession is over after two straight quarters of growth and predicted that the economy would expand by up to five per cent in 2010.

The Monetary Authority of Singapore announced that it will maintain its current policy stance until April 2010 as it is cautious about the economic momentum ahead. Strong economic growth is expected in the first half of 2010, with growth slowing markedly in the second half of the year.

Hong Kong

Hong Kong is a small, open economy, and a regional financial hub, with limited natural resources. The global financial crisis caused a sharp slowdown in the second half of 2008, pushing the country into recession.

The wealth effects arising from higher property and stock prices, the increasing demand for durable goods and improving job and income prospects have driven consumption growth in recent months. Investment growth surprisingly turned positive at 1.4 per cent in Q3 2009. Economic growth should remain well supported in the months ahead by the acceleration of economic growth in China and the abundant liquidity conditions because of the Hong Kong dollar peg. To guard against the formation of property and equity price bubbles, the country's Monetary Authority has required banks to comply with prudent lending practices.

In conclusion, economic recovery has commenced and is most robust on the Asian continent, but if the rest of the world does not catch up quickly, it looks as though it will miss a lot of the momentum, and Asia is not sufficiently advanced in its development to pull the rest of the world along. However, while Asia's rebound may fade during the course of 2010, it is not expected to come to a complete halt as such countries are not subject to the same debt-derived growth constraints. Moreover, Asia's more domestic demand focused economies, should see sustained improvement in both 2010 and in 2011.

This article has been prepared by the Research & Analysis Unit of BoV Wealth Management.

This document is issued by Bank of Valletta plc for information purposes only. This document is not and should not be construed as an offer or recommendation to sell or solicitation of an offer or recommendation to purchase or subscribe for any investment. This information may not necessarily be appropriate to your particular investments requirements and risk profile. It is therefore recommended that if you require investment advice or wish to discuss the suitability of any investment decision, you should seek financial, legal or tax advice from your professional advisers as appropriate.

Opinions, estimates and projections in this report constitute the current judgment of the author as of the date of this report.

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