Asia is not likely to suffer a downturn over the next two years if the US does not fall into a full blown recession, Lehman Brothers forecast in its outlook for 2008.
Investors all across Asia may be nervous about the outlook for the US economy, but the financial services firm is taking a positive stance.
Lehman Brothers' global chief economist Paul Sheard said, "A lot of people, of course, are focusing now on the risk of a recession in the US. We do think the risk is quite high; we would put it at around 40 per cent. And that's a lot higher obviously than a normal year where it's probably just a five or six (per cent) chance that the economy could slip into recession." But he expected the worst to be averted.
"The monetary easing from the Fed and the other fiscal policies that are likely to be implemented may help the economy to skirt recession. But it's a close call if the economy would be hit by another shock or a couple of shocks that could certainly tip the economy into recession," he said.
The firm said it expects Asian economies, excluding Japan, to grow 7.5 per cent as a whole this year, down one point from 2007.
Although a recession in the US could shave that expansion by some 4.5 percentage points this year, Lehman Brothers is taking a bullish view for now.
Robert Subbaraman, Lehman Brothers' chief economist for Asia (ex-Japan), said: "I would say that Lehman Brothers has an overweight position on Asia-ex-Japan and that we are bullish on the region for the medium-term perspective.
"So (for) medium-term, the equity market in Singapore and in Asia should do well. Singapore's in a very good position to be a hub, a service centre to India and the other Southeast Asian economies which should be very positive for Singapore in the medium term."
The financial services firm is predicting the Singapore economy to grow 5.3 per cent this year, in line with the government forecasts. - CNA/ac
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