Asia’s economies may still be booming, but a worrying amount of private
sector credit is laying the groundwork of the next financial crisis,
according to a new research by Capital Economics.
“Private sector credit as a share of gross domestic product (learn more) [in Asia] has surged over the past few years and is now at an all-time high,” the research note said.
“Private sector credit as a share of gross domestic product (learn more) [in Asia] has surged over the past few years and is now at an all-time high,” the research note said.
The rise in credit is most worrying in Hong Kong, Vietnam and China, Capital Economics said.
Although
it is normal in developing economies and financial sectors of
developing economies for credit to rise as a proportion of GDP, growth
should not be fully charged on credit, as was the case in Ireland and the Baltic countries in the years before the 2008 financial crisis.
Capital
Economics said that the “credit explosion” in Hong Kong is worryingly
similar to the situation in Ireland prior to the financial crisis, when
the Irish economy expanded rapidly due to a low corporate tax rate, low
European Central Bank interest rates, and other factors which led to an
expansion of credit and a property bubble.
House
prices in Hong Kong have surged in the past years because of strong
lending growth. Capital Economics said that house prices will have to
fall by 30 percent if the market wants to return to balance.
Capital
Economics also warned against credit growth in Vietnam and China.
“Although credit growth in Vietnam and China has been less alarming, it
has still been very strong,” the note said.
Capital Economics worried that rapid lending growth in China has led to a sharp rise in capacity in the manufacturing sector which could be a blow to medium-term growth prospects.
Read more: http://www.cnbc.com/id/49661255
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