Labourers at work
Labourers work at a steel manufacturing plant in Hefei, Anhui province November 23, 2011. Reuters

Asia's economic growth may be settling into a middling pace that is too slow to provide significant global support but too fast to warrant aggressive policy easing.

Labourers work at a steel manufacturing plant in Hefei, Anhui province November 23, 2011.

Most of the region's emerging economies have space to cut interest rates or boost government spending to counter the impact from the global slowdown.

That's in sharp contrast to the developed world where the United States, Britain, Japan and others have long since pushed benchmark borrowing costs down to near zero, while swollen budgets provide little scope for stimulus.

But the latest batch of economic data out of Asia showed growth was not slowing quite as precipitously as many economists had feared. This bolsters the wait-and-see case, particularly when the biggest economic threat -- Europe's debt crisis -- is so difficult to predict.

The data still suggests that we're losing momentum, but we're not losing momentum in a rapid deterioration that requires immediate action, said Claudio Piron, emerging Asia rates strategist with Bank of America-Merrill Lynch.

Take China's fourth-quarter growth figures, for example. Although the year-on-year rise of 8.9 percent was the slowest since mid-2009, it was still a bit stronger than economists polled by Reuters had predicted.

In India, a measure of factory activity picked up far more than expected in December, alleviating fears that the economy was unraveling. Yet gross domestic product growth has slowed dramatically and is likely to worsen in the current quarter.

Singapore's non-oil exports surged 16.4 percent in December, more than four times the consensus forecast in a Reuters poll. But economists still think the city-state is slipping into at least a brief recession.

That muddles the policy picture.

It seems easiest for policymakers across Asia to do nothing, Peter Eadon-Clarke, Asia economist at Macquarie, wrote in a note to clients.

For global investors looking to Asia to pick up the slack for faltering Europe and the sluggish United States, this sort of not terrible but not great economic growth is the worst of both worlds.

The World Bank slashed its global forecast on Wednesday, predicting the economy would grow just 2.5 percent this year and 3.1 percent next year.

While most of that reflected a gloomier outlook for the advanced economies, the World bank also downgraded its assessment of developing economies and warned them to start contingency planning in case of another global slump as bad as the 2008 financial crisis.

But unless such a threat materializes, Asian officials seem content to proceed slowly.

Bank of America's Piron, who spoke to Reuters from Kuala Lumpur where he was visiting clients, said investors had begun paring back expectations for rate cuts out of South Korea, Malaysia and Thailand, an acknowledgement that policy easing may be more gradual and selective.

Oil prices remain above $100 per barrel even with global economic prospects looking shaky, which suggests inflation pressures could become a problem again if growth picks up later this year, as many economists expect.

Inflation has come down sharply across Asia over the past six months, but some of that simply reflects the fact that prices started climbing in late 2010, so year-on-year comparisons look better.

The root causes of inflation persist. Unemployment is low, pushing up wages in countries such as China. Rising incomes mean people can afford to spend more on food, increasing demand for meat and the crops that feed the livestock.

All of that adds to policymakers' hesitancy.


Some investors might be disappointed by the gradual approach, but most Asian economies can afford to take their time because monetary policy settings remain relatively loose.

Benchmark interest rates across the region remain below where they were in 2008, just before the bankruptcy of Lehman Brothers triggered a deep global recession. Even in India, where the central bank has raised rates 13 times since March 2010, they are still slightly below the 2008 peak.

Central banks in Indonesia, Thailand and Australia started easing late in 2011, while China reduced banks' reserve requirements to try to spur more lending. More cuts are expected in 2012 from India, Indonesia, the Philippines and South Korea.

But in a Reuters poll published on Thursday, economists thought the easing cycle may be brief. In Australia, for example, they predicted one more interest rate cut in the first quarter of 2012, but thought rates would be right back where they are now by the middle of next year.

The pattern was the same for Indonesia and South Korea, with at least one rate cut expected in 2012 before central banks start tightening again in 2013.

Both China and India appeared to be focused on assuring there was sufficient cash to keep financial markets operating smoothly, rather than cutting interest rates to prepare for an impending slowdown, Piron said.

India has also used open market operations to try to stabilize its bond market in recent weeks.

China's central bank injected money into the market twice the week to meet demand for cash ahead of the week-long Lunar New Year celebration, which begins on January 23. Chinese traditional give money to children as part of the celebration.

In a volatile 2012, the most important thing for Beijing is to be flexible and open-minded, Ting Lu, an economist with Bank of America-Merrill Lynch, wrote in a note to clients.