Asia May See Deceleration in Economic Growth Ahead

With companies in Asia slowing their capital investment, the region may face a deceleration in economic growth ahead, HSBC said.  “Despite record low funding costs and, in many places, unparalleled profits, firms are often prone to hoarding cash rather than investing it,” Frederic Neumann, an economist at HSBC, said in a recent note.

“Growth pessimism” may be at least partly to blame, he said. “If firms suspect that demand in the East and the West will not accelerate appreciably, why take the risk and boost capex?” Neumann said. “The trouble with this is that it kicks off a self-feeding cycle: without more investment, growth will not pick up, and with demand disappointing, capital spending languishes.”

Only three periods in the past two decades have had capital spending growth as weak as it is now: the Asian financial crisis, the tech slump and the global financial crisis, Neumann said. In most Asian countries, capex as a share of gross domestic product (GDP) has fallen since 2000, he said.


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