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Emerging economies 'driving recovery'

(China Daily)
Updated: 2010-01-30 08:11

Emerging nations have become a major driving force for global economic recovery, indicating a shift in the balance of global economic power after the financial crisis, according to a report released by HSBC on Friday.

HSBC's Emerging Markets Insights, an annual report based on the bank's emerging market index, said emerging economies will continue to bolster global recovery this year, as the index for the fourth quarter of 2009 showed manufacturing and service output in these countries grew at the fastest pace in the past two years.

The report also estimated that emerging economies would grow 6.2 percent in 2010, compared to 1.9 percent for developed nations.

Stephen King, HSBC global chief economist

"We have reached a tipping point in global economic affairs, as 2009 will surely go down as the year when we both uncovered the scale of the crisis in the developed world and celebrated the resilience of much of the emerging world in the face of what appeared to be a perfect economic storm," said Stephen King, HSBC's global chief economist.

Much of the success in emerging markets has been driven by China, which rebounded strongly last year amid massive fiscal and monetary stimulus.

China's buoyant demand for commodities has in turn benefited a number of emerging economies - Brazil, Chile and Middle Eastern countries, as well as major commodity producers within the developed world, King said.

"The country's infrastructure-led recovery will likely be sustained into 2010," said Qu Hongbin, the bank's chief China economist. He expects China's economic growth to accelerate to 9.5 percent this year from the 8.7 percent it registered last year.

However, King said the bank's emerging market index also showed that inflationary pressures were beginning to return, thus nations would respond differently to this pressure, with increased interest rates likely to feature.

China is believed to be one of the first to seek exit from the quantitative easing monetary policy cycle, as the government has tightened policies due to rising concerns over inflation and asset bubbles.

In early January, the People's Bank of China raised the reserve requirement ratio by 0.5 percentage points, a move signaling the country's determination to soak up excessive liquidity in the market and shift to a tighter policy cycle this year.

The nation's financial regulators, which aim to control the amount of new loans to be issued this year at some 7.5 trillion yuan, have also repeatedly ordered commercial lenders to slow down lending as part of the effort to contain the risk of overheating.

"In essence, the trajectory of monetary policy between the East and the West will have to diverge. We expect central banks in most Asian markets to raise interest rates, even before their peers in the West have embarked on a tightening course," Qu said.