Asia's central banks are 'losing their punch'

On the surface, Asia’s economy doesn’t look that bad. Growth is slowing, but hasn’t collapsed. China’s economy was boosted by a generous stimulus in the second quarter. Brexit has barely affected the region at all.

But look a little closer, and it’s not quite so hopeful.

That’s the conclusion of a new report from HSBC that is mainly about the ability of central banks in Asia to revitalize their countries’ economies. The problem? They don’t really have that ability.

All across Asia, economies are languishing. The stimulus that grew China’s economy in the second economy belied the fact that private investment and exports have continued to slow. And other countries — which are far more dependent on trade and exports — have been experiencing this too.

Hong Kong is almost certainly headed for a recession, for example. South Korea’s exports are declining. Vietnam is growing, but not as quickly as it wants to be.

“[South] Korea, Taiwan, Singapore, Hong Kong, Malaysia, and Thailand are especially exposed to weak exports,” the report states. “It’s difficult to see a convincing rebound in global trade over the next few quarters that could fire up growth in these economies.”

With such a dire economic backdrop, central banks are feeling pressure to take interest rates even lower, HSBC says. Malaysia unexpectedly cut rates last week, and HSBC anticipates that South Korea, Taiwan, China, Japan, and Thailand will follow. A few months ago, Credit Suisse hypothesized that Taiwan may soon be adopting negative interest rates to stimulate growth.

But it’s really not going to make much of a difference for growth, mainly because the current extremely low level of interest rates means that any potential impact from a further drop in rates is relatively small. “At the margin it might still add a little support,” the report states. “But, more and more, central banks in Asia are also losing their punch.”

Which means growth prospects are looking even more grim.

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