Asia less affected by sub-prime, says Merrill

The ongoing sub-prime crisis in the US has had a limited impact on growth in Asia as it is less vulnerable to a financial sector shock, states a report by Merrill Lynch.

Pointing out that the direct effects of the US sub-prime losses on the global economy are small, the report states the macro risk to the global economy lies in an unexpected curtailment of finance from China, West Asia and Russia.

The report says that for Asia, the implications are mostly financial, not real. "Asia's underlying fundamentals remain strong even in the face of a credit crunch from the US and consumer downturn. Credit problems are more likely to affect global borrowers, not a region like Asia with high savings rates, current account surpluses and rising foreign exchange reserves," the report says.

Another facet in Asia is the relatively small exposure of the region's institutions to sub-prime mortgages or corporate credit.

Merrill Lynch has estimated that the direct US mortgage loan losses range between $120 billion and $170 billion.

It also predicts that the non-US central banks are likely to continue tightening on the monetary front, particularly as the global economy is still accelerating and liquidity growth remains rapid in many countries.

The firm has forecast that the global GDP growth will dip from 5.1 per cent in 2007 to 4.8 per cent in 2008. For India, which recorded a GDP growth of 9.4 per cent in the 2006-07 fiscal, the forecast for 2008 is slightly lower at 8.3 per cent.

The report expects a lasting slowdown in the US economy, led by the housing and consumer segment.