(8 June 2012 – Asia) HSBC’s head of Asian economics, Frederic Neumann has warned of an impending hit to growth across Asia if European banks continue to pull loans from the region.Neumann, who spoke to The Herald this week, said European banks were a key source of credit for emerging Asian economies.
A flight of capital from Asia might slow growth in the region before local banks could step up to fill the funding gap, he said.
”Asia’s GDP growth is to a large extent dependent on the continuous expansion of credit,” Dr Neumann said. ”Any upset in the global financial system will impact the credit creation process across Asia and therefore immediately harm domestic growth.”
The effect of a credit withdrawal was evident late last year when European banks pulled loans from Asia, resulting in an immediate downturn in Asian consumption and investment, Dr Neumann said.
European banks had lent more than US$1.3 trillion (A$1.1 trillion) to Asia. Their lending to the region was greater than that of the US and Japan, he said.
Neumann said China’s rate of growth was likely to remain robust but he warned ”against any exaggerated expectation of a tremendous rebound in commodities demand”.
China had to roll out a stimulus package to avoid a hard landing, he said.