Bank: Asia can weather modest slowdown in US t

KUALA LUMPUR: Asian economies can handle a modest slowing down of the US economy but a full-blown recession would have a significant effect, says Bank of America Merrill Lynch.

Bank of America Merrill Lynch thinks that the larger the downturn, the more difficult it is for Asia to decouple from it.

Based on its analysis of previous cycles, Asian growth is found to be much more sensitive to recessions.

"The underlying rationale is simple: a large shock has a bigger impact on confidence, asset prices, funding conditions, and thus domestic demand. It is also harder for macro policy to offset a large shock," the bank said in a report.

Asia, it said, can grow at healthy rates even if the US economy is weak, as long as growth is not slowing significantly.

The backdrop of strong Asian growth, weak US growth, and supportive US monetary policy can be bullish for Asian asset prices.

It pointed out that a few positives for the second half of the year and this includes a sharp recovery of production in Japan, which should boost demand for exports and alleviate concerns about shortages in the Asian supply chain.

Meanwhile, Bank of America Merrill Lynch has reviewed its Asian growth forecasts for 2011-2012 in response to recent weak US data and downgraded its forecasts in the US, Europe and Japan.

It has cut 2011 gross domestic product growth for Singapore to 4.5 per cent (-30 basis points), Malaysia to 4.4 per cent (-70 basis points), and the Philippines 4.7 per cent ( -110 basis points).

It left Indonesia unchanged at 6.3 per cent and raised Thailand's growth level to 4.1 per cent (up 30 basis points).