The recovery in exports has continued and there are now signs that domestic demand is bottoming out too given that the deterioration in labour markets in most places has been, and should stay, mild. Asia faces another weak quarter for GDP in Q2 but the recovery is likely to gain momentum in the second half of 2009. The issue now is the likely shape of the upswing. We expect only a weak expansion. Asia this time around will get much less help from the global economy than was the case in the late 1990s. Domestic demand is also unlikely to expand strongly. Credit availability looks set to remain constrained and the lift to real consumer incomes from lower inflation has largely come through. Market pressures are also beginning to bring a shift toward more “neutral” fiscal policies, whilst central bank easing cycles just about everywhere are close to being over.
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