A CREDIT squeeze caused by Europe's banks pulling loans out of the region is not on the cards, at least for now, according to a leading Singapore-based economist.
ANZ's chief economist for Asia-Pacific Paul Gruenwald said this was clearest in Singapore, where Asian banks have picked up the slack left behind by European banks.
He cited data from the Monetary Authority of Singapore to point out that as European banks pull out interbank funding from the Republic, their well-capitalised Asian counterparts have been filling the gap.
"Funding is still available in the banking system, but the creditors have shifted from being European to now, the rest of Asia," said Mr Gruenwald at a briefing here on Thursday.
Concerns had been raised amid the growing euro zone debt crisis that a sharp deleveraging of European banks clawing back wholesale funding from Asia's banking system could spark a credit crisis.
This happened in 2008 and 2009 in the wake of the Lehman Brothers' collapse, which set off a global credit crunch.
"As long as we get this orderly withdrawal of European banks and orderly substitution by Asian banks within the region, we're not too worried about a credit crunch, Mr Gruenwald said. He added that the only caveat is if Europe's crisis deepens and the economy turns pear-shaped, which he deemed unlikely.
Another scenario that is unlikely at this stage is a global recession, said ANZ chief economist Warren Hogan. That optimism is largely premised on expectations that the United States is set for recovery, while stimulus measures in China could see an uptick in its investment-led growth in the second half of this year.
"China looks to be bottoming out. That's the main game right now for China - to try to figure out if the loss of momentum has come to an end. While there are significant policy measures, we're not sure to what extent it would reignite growth," said Mr Hogan.
Asian economies such as Singapore, Hong Kong and Taiwan have become increasingly reliant on mainland China to drive growth.
That's a good thing, said Mr Gruenwald, as "China is a good neighbourhood to be in" and the economy is expected to grow "north of 7 per cent".
China's policy-makers have ample policy space to spur growth and the added impetus is that this is a "political year" for the country, he added.