The larger-than- expected shock to the financial sector over the past couple of months, and its knock-on effects on both domestic and external demand are responsible for our lower growth projections. We believe there is little fiscal room for additional stimulus in FY10.
We now expect growth to trough at a quarterly pace of 5.0% in the April-June quarter of FY10, before recovering to 6.6% by end-FY10. The slowdown, in our view, is very much cyclical in nature.
We look at the impact on corporate, bank, household and government balance sheets, and negative feedback loops.
The silver lining—a large monetary policy stimulus, prospects of a good agricultural crop supporting rural demand, lower commodity prices, and ongoing infrastructure spending which would limit further downside to growth.
ASEAN Surprise Indices: Activity surprising on the downside across the board
The ASEAN Surprise Index remained in negative territory for the second month in a row. This indicates that activity in the region is now coming in weaker than consensus expectations, which also has been generally revised lower in recent months. More importantly, the surprise indices for all countries registered a decline.
Hong Kong: Tighter local financial conditions exacerbates growth concerns
The recent tightening of credit conditions is exacerbating the knock-on effect of the external demand slowdown on the Hong Kong economy. We expect GDP growth to slow to 2.2% in 2009, from our forecasted 3.0% in 2008. Our GDP growth forecasts are well below the consensus forecasts of 4.0% and 3.1% for 2008 and 2009 respectively.
Tushar Poddar, Vice President - Asia Economics Research & Team at Goldman Sachs has prepared a report on this