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The world economy should remain spinning steadily this year,
with an expected increase in consumer demand in Asia set to balance out
possible wobbles from a likely slowdown in the U.S. economy, says a
forecast from U.S.-based investment house Merrill Lynch.
China and India will continue to lead last year's good-news story for
the economies of the Pacific Rim, Merrill Lynch said, with Japan --
having lately shown signs of a recovery -- to provide further support.
"Consumption expenditure in the Pacific Rim will be enough to weather a
slow landing of the U.S. economy," Merrill Lynch chief economist Jesper
Koll said in a media briefing on the report Tuesday.
"Japan, in particular, will be the main source of demand for Asia."
Merrill Lynch sees Japan's economy recovering from last year's high
levels of savings, bad loans in the banking sector and unemployment,
picking up on more growth from domestic demand this year with the
Japanese central bank being in no rush to raise rates and the
government ruling out an early hike in consumer taxes.
Japan is expected to experience slightly higher growth of 2.2 percent
in 2007 from 2.1 percent last year, helping compensate for the effects
of the U.S. growing slower at 1.7 percent (from 3.2 percent) due to the
recent housing market downturn.
This will result in the global economy still being able to grow by an
aggregate of no less than 4.5 percent (from 5.2 percent), and the Asian
region at 7.8 percent (8.7 percent).
The region's expected growth should be strong enough to boost
inflationary pressures in the second half of this year, which, coupled
with strong external surpluses, should support continued policy
tightening through currency appreciation and persistent central bank
rate hikes, Merrill Lynch global forex strategist Alex Patelis said.
All this will in turn help spread out more evenly to emerging markets
the more than US$800 billion of capital flowing each year into the
U.S., thus easing out the risk of global imbalances in the world
economy.
Specifically for Indonesia, Merrill Lynch sees this as an opportunity
to continue attracting investors to the country's financial markets.
"Investors are looking at new frontiers. There is a race going on
between emerging markets to attract investors," Koll said. "Now is a
good opportunity for the government to put in place good policies to
support this."
Merrill Lynch sees Indonesia's central bank being able to continue
cutting rates to 9 percent by the year's end from 9.5 percent at
present.
With inflation standing at some 6.6 percent now, the resulting real
interest rate may not be "historically attractive, but still more
attractive if compared to other countries in the region," Patelis said.
The overweight rupiah also remains among the investment firm's favorite
currencies in Asia, he added.
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