December 24, 2012
Kuala
Lumpur skyline at dusk. WSJ reported that Malaysia had one of the
higher figures of debt levels in the region, with the country’s
credit-to-GDP ratio this June rising to 117 per cent from 96 per cent in
late 2007. – Reuters pic
KUALA LUMPUR, Dec 24 – Economists
warn that a rise in domestic debt that has been keeping Asia’s economy
strong could place the region, which includes Malaysia, at risk of a
major crisis, the Wall Street Journal (WSJ) reported.
The WSJ noted the great increase in the number of loans being taken
by Asian businesses and individuals due to the low interest rates
offered by banks.
But Frederic Neumann, co-head of Asian economic research at HSBC,
warned that the Asia could be at the brink of a major debt crisis,
saying: “I believe we are at the beginning of a major debt cycle in
Asia.”
“We are certainly seeing the early symptoms of a debt bubble
emerging, and I think it’s worth keeping a close eye on,” he told the
international business paper last Friday.
The WSJ reported that Asia’s debt levels had jumped far greater than the troubled Euro zone and the US.
Asia’s credit-to-GDP ratio shot up to 104 per cent this June from 82
per cent in December 2007, while the Euro Zone’s was a slower rise of
131 per cent from 123 per cent and the US’ ratio had went down by one
per cent to 62 per cent.
“If you look at the speed of increase in credit growth in virtually
all Asian countries, if that’s maintained, in two to three years the
situation’s going to come to a head.
“Northeast Asia, Singapore, Malaysia and Thailand all are at risk in this regard,” Neumann said.
WSJ reported that Malaysia had one of the higher figures of debt
levels in the region, with the country’s credit-to-GDP ratio this June
rising to 117 per cent from 96 per cent in late 2007.
Hong Kong and Singapore had a high ratio growth in the same five-year
period, with the former’s ratio climbing to 275 per cent from 183 per
cent, while the latter went up to 137 per cent from 87 per cent.
Indonesia only grew to 33 per cent from 25 per cent.
The International Monetary Fund reportedly said that an increase in
the credit-to-GDP ratio of above five percentage points a year, coupled
with a rise in equities prices of at least 15 per cent, would show a 20
per cent chance for a crisis to happen within the coming two years.
But governments in Asia, including Putrajaya, have moved to cut down on debts within the country.
Putrajaya has tightened regulations for housing loans and discouraged the chalking up of huge credit card debts.
According to the WSJ, the World Bank had warned Asian countries with
high jumps in their debt levels to be alert and act to cut down on
risks.
Malaysia had been hit with a financial crisis along with the rest of Asia in 1997.
Although Asian economies have recovered and picked up growth since
then, governments are trying their best to avoid a repeat of the painful
episode.
Like other Asian countries, Malaysia now continues to rely on
increasing domestic demand to drive its economy, which grew by a strong
5.2 per cent in the third quarter this year, despite weaker export
figures.
Daniel Martin echoed Neumann’s worry, saying that letting credit growth drive the economies could be risky.
“I think there’s now a danger, the way the global economy is, that
increasingly Asia comes to rely on loose monetary policy and rapid
credit growth to compensate for weak exports,” the economist for Asia at
Capital Economics was quoted saying by WSJ.
No comments:
Post a Comment