SINGAPORE: Asian economies will be hit by falling demand for their exports from major markets such as Europe and the United States. A US-led recovery is likely to only kick in from the middle of next year.

Barclays Capital said any potential recovery will be affected if governments adopt protectionist policies, such as tariffs to protect domestic businesses from foreign competition, in the current challenging environment.

Laurence Kantor, managing director, Research, Barclays Capital, said: "There's a quid pro quo on that... it causes others to do the same thing and you get these trade barriers which make everybody worse off."

While it is not clear if increased protectionism will slow a global economic recovery, market watchers believe the world has not seen the end of companies going under due to the financial crisis.

Kantor said: "That's already in the forecast in my view. In other words, the reason why we have business cycles is because one thing feeds on the other. This credit freeze will have lasting and circular effects.

"Inevitably, corporate default rates will increase. No question about it. What turns around this kind of thing is a combination of policy reaction. We're getting a lot of stimulus and from the asset side, things get very cheap."

But he believes that one bright spark for the region is China, which looks well-poised to weather the storm.

"They have a lot of tools at their disposal that many other countries do not have, so my forecast is that they're going to be largely successful," Kantor said.

Barclays expects China's economy to expand by 8.5 per cent in 2009 – slower than the double-digit growth seen in previous years, but better than other countries in the Asian region.


- CNA/so