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Bullish DBS says Asia is rebounding in a 'V-shape'

by Esther Fung, updated 10:34 AM Jun 09, 2009

SOUNDING a bullish note that some of its peers did not completely agree with, DBS Group Research yesterday issued a report suggesting Asia is on its way to an economic recovery because the region's production is rebounding in a V-shaped fashion.

"Asia is perched on a recovery path at the moment," said DBS chief economist David Carbon. "Industrial production (in Asia) is 70- to 85-per-cent back to pre-crisis levels and exports have recovered about a third of their lost territory."

A key development is strong month-on-month industrial production data for April in Taiwan, Singapore, Korea and Thailand, he said.

"We believe that the drop in both industrial production and exports was due more to "one-off" and other temporary factors than to fundamental imbalances in Asia, and that the upturn is mainly a result of those factors fading from the picture," Mr Carbon said.

"As such, we do not expect a W-shaped path (another down leg) in the near term."

He said some of the temporary factors include the exports fall after the Olympics, the weakness in commodity prices and the shock from the financial meltdown in the fourth quarter of last year.

"Exports have come back, but in the past month or two, the rebound in production has been even sharper," he said. "Normally, producers wait before they produce until they are sure the demand is for real, and they draw down their inventories. In this case, production has come back very strongly.

"My sense is that it's probably meant to remain that way, to have a nice big surge there. They never walk hand-in-hand anyway."

While other analysts agree that the worst is over, they differ on whether the recovery is V-shaped.

The recent pick-up in production could be due to restocking depleted inventories instead of the result of actual demand, said Standard Chartered economist Alvin Liew, adding that the plunge in production in late 2008 and early 2009 was so sharp that slightly better data would make the profile a V-shape.

"Can the trajectory persist in that manner? I doubt it," said Mr Liew.

Mr David Cohen of Action Economics, too, said the sustainability of the recent pick-up was not conclusive yet.

A lot still depends on how robust the recovery in Europe and the United States. Analysts noted that the US unemployment rate rose to 9.4 per cent in May from 8.9 per cent in April, suggesting that even if the US economy recovers later this year, any growth could remain weak.

"There is some indication that demand has stabilised, but I'd be careful to say that we're on a V-shaped recovery as there is no compelling reason to say that demand from the advanced economies has picked up," said Forecast Singapore economist Vishnu Varathan.

"A lot depends on whether the US consumer will continue spending."

From TODAY, Business – Tuesday, 09-Jun-2009

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