Asia debt binge to dampen growth but not derail It, Oxford says

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An Indian vendor display religious lockets for sale at a stall near a temple in Amritsar on February 19, 2018. -- AFP

Asia’s soaring levels of debt will weigh on growth over the next decade — especially in China, Malaysia, Thailand and India — but it won’t be enough to derail the region’s economy.

That’s because of mitigating factors such as high domestic savings and resilient supply side dynamics, according to Priyanka Kishore, lead Asia economist at Oxford Economics Ltd. in Singapore.

“These should act as substantial buffers,” Kishore wrote in a note. “Even with growth slowing to 3.5% by 2030 (from around 5% currently), we expect Asia to remain the largest contributor to global growth in the long run.”

Oxford forecasts that in the long run, the debt of households and non-financial companies will remain above 100% of gross domestic product in most Asian economies, excluding Japan.

Noting that conventional analysis indicates this should weigh on growth, Kishore said country specific factors such as the distribution of private sector leverage by assets/income level found that China, Malaysia and Thailand, and India to a lesser extent, stand out as vulnerable to debt-induced spending cutbacks.

But Asia will still remain the world’s growth engine, Kishore wrote. — Bloomberg