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Bank of America Merrill Lynch, an investment bank, reported on Friday that the economic slowdown is spreading from China to other parts of Asia through trade channels, which will hurt the internal demand of other economies for some time to come. China is expected to increase policy easing later, especially in credit expansion and real estate. However, it is still not expected that China will lower its benchmark interest rate and some regional markets. Then there is the possibility of interest rate reduction.
According to the report, small open economies have limited cushion against weak external demand, and weak exports have restrained growth in local demand, especially in manufacturing. Since the second half of last year, PMI in manufacturing industry in Asia has begun to cool down, damaging the investment climate. Weak overall demand and lower commodity prices have pushed CPI inflation below expectations and led to growth in many regional economies reaching only the low end of the target range.
Slowing growth and falling inflation have led many regional central banks to end the process of monetary normalization and turn their attention to steady growth. Especially when the Federal Reserve is ready to launch the next interest rate increase, it is expected that the central banks in the region will be more dependent on data and may be more relaxed.
Bank of America Merrill Lynch said that in the past two months, the market has also witnessed a re-examination of policy risks by the central bank, and the latest market pricing reflects the risk of interest rate cuts in most markets. The market expects the biggest monetary easing in the coming year to occur in India, Malaysia, South Korea and China.
The report argues that the key to China's soft landing is for policy makers to restart credit expansion and relax real estate regulation measures in the near future, while increasing support for infrastructure investment projects. In the next two to three months, it is expected that the growth of social financing will bottom out, which will improve China's economic activity indicators in the next three to four months.


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