As Asian countries closely monitor whether lawmakers in Washington will agree on a plan to raise the debt ceiling, there are some signs of a slowdown in one bellwether Asian economy.
Singapore reported a sharp slump in the second quarter, but economists are hopeful about longer-term prospects. Despite the budget standoff in Washington, Asia stocks on Friday were largely mixed.
In Seoul, Finance Minister Bahk Jae-wan, speaking through a translator, told Reuters he expects Washington to find a solution before the August 2 debt ceiling deadline.
"We are not at a stage at all, at which we need to consider steps such as [reviving] a currency swap with the U.S," he said.
South Korea holds large amounts of dollars in its exchange reserves. During the global financial crisis a few years ago, the United States and other governments used currency swaps, exchanges of reserves, to help steady financial systems.
There are signs that Japan’s earthquake and tsunami and Europe’s debt crisis are hurting Asian economies this year.
In Singapore, industrial production and gross domestic product growth slumped to an annualized half-a-percent in the second quarter, down from more than nine percent in the first three months of the year.
Economists blame disruptions in Japan’s global supply chain after the earthquake in March. The Bank of Japan this week marked down its growth outlook because of the quake.
The European debt crisis and the weak economic performance in the United States have reduced the outlook for Asia’s exports. Most Asian economies rely heavily on exports for growth.
Brian Redican, senior economist with Macquarie Bank Group in Australia, says while Singapore’s slowdown is an indicator for Asia in the near term, he expects a recovery later in the year.
“Singapore does tend to lead Asian economies," he said. "You will start to see that reflected in other Asian economies over the next couple of months. But we don’t think that the downturn in Singapore so far will continue into the end of the year. As we head toward December, Singapore should actually be emerging quite quickly from this temporary slowdown.”
Redican and other economists say China and India’s growth will bolster Asian economies.
There are signs that China’s industrial production and investment are slowing slightly, which some economists say is a good thing because it means efforts to cut inflation are working.
Redican says China’s outlook is positive.
“We still think we’re getting a slowdown within China, and again that’s probably [going to] remain in place for the next six months or so. But it’s not occurring too quickly and that should provide a good deal of reassurance that the largest economy in the region is going to remain quite strong,” Redican says.
In Thailand, market analysts expect newly elected Prime Minister Yingluck Shinawatra to use new government spending programs to boost growth.
Economists say, however, that higher inflation and interest rates could strengthen the Thai currency and undermine export growth.