Asian growth looks to have picked up late last year and is likely to fare well in the near term. However, growth in 2013-14 is unlikely to be strong due to lacklustre external demand and structural weaknesses in Asia’s major economies. Policy rates in many countries are likely to be cut this year to support domestic demand, although not aggressively, while fiscal policy will remain supportive. Asian financial markets will be vulnerable to shocks emanating from the developed world, but these shocks should prove short-lived and we expect Asian currencies and equities to strengthen over our forecast horizon. Government bond yields will remain low, although will probably start to rise next year.
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