Asia's debt cycle to propel growth outlook

Even if exports pick up.

Amid the expected return of liquidity risks later in 2014, it is believed that Asia's debt cycle will be the dominant driver of the growth outlook even assuming exports pick up.

According to a research report from UBS, Asia's credit cycle looks close to the top.

Further, private sector debt in Asia is now at the same levels as the US and not far behind Europe.

Here's more from UBS:

Most of the region continues to allow credit to grow faster than income, but Asia is now at a point where additional leverage provides diminishing marginal benefits to domestic demand.

Note that both China and Korea took measures to prop up domestic demand last month by either easing monetary policy at the margin or targeting liquidity at certain sectors deemed in need of support; whereas monetary policy in India and ASEAN remains tilted toward tightening in our view.

Meanwhile, the outlook for Asian ex-China exports remains mired in the tension between an improving outlook for the US economy and a not so optimistic outlook for Chinese construction and property.

Our take is that you can achieve mid-single digit export growth (probably better for Chinese exports as they are not exposed to China's construction cycle), but that's not enough to compensate for debt overhang going forward. Regional GDP growth will likely remain well below trend for the next year or two.

The only economies we forecast to accelerate on the horizon are India and Thailand.