HONG KONG (BLOOMBERG) - For years after the 2008 financial crisis, Asia's rapidly expanding economies propped up global growth, with China clocking a pace of more than 9 per cent, pulling along its neighbors.
Now, China's continuing slowdown is dragging them too, exposing weaknesses across the region, from Indonesian borrowing needs to record Korean household debt and the bureaucratic and corruption hurdles in the Philippines that hold back its infrastructure projects.
Growth is undershooting forecasts, hurt by exports that are falling in nine among 12 main Asian economies, according to data compiled by Bloomberg. The slump, which spans India to Malaysia and South Korea, is partly a consequence of China's deceleration - to a growth estimated at 6.8 per cent for last quarter, behind the government's target for about 7 per cent for 2015.
Making things worse is that, unlike the global slowdown in 2008-09 when Asia was primed to unleash stimulus, this time the region is saddled with debt. And in some economies, interest rates are already at a record low. While lower oil prices have helped budgets, the impact on spending has been muted so far.
"Asia rode high on the wave of a vast global monetary stimulus in recent years. Now the bill is coming due," said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong.
The slowdown puts Asia on looser ground to face threats from financial turmoil - including the risk of an exit of Greece from the euro region, interest-rate increases by the US Federal Reserve and the volatility in China's stocks in recent weeks. Higher US borrowing costs could trigger an outflow of capital that exacerbates debt challenges.
"The combination of Asia's declining investment returns and high local debt levels is forcing deleveraging, which should lead to capital exports," Morgan Stanley's global currency research team, led by Hans Redeker in London, wrote in a July 9 note. That suggests outflows of funds to the US dollar, they wrote.
Across Asia the story is similar. Shipments from South Korea - equivalent to about half the nation's gross domestic product - have been falling all year, hurt by weak demand in its biggest market, China.
Philippine exports in May fell 17.4 per cent from a year before, deeper than the 10 per cent drop that economists anticipated in a report on Friday. The International Monetary Fund now sees 6.2 per cent growth this year and 6.5 per cent in 2016, against 6.7 per cent and 6.3 per cent previously.
Analysts at JPMorgan Chase & Co estimate that growth in Asia's emerging economies, excluding China and India, is on track to record its weakest quarter since the end of 2011. GDP could have expanded by a seasonally adjusted annualized 1.3 per cent in the second quarter from the previous three months, the US bank said in a note.
Things may get worse - in Singapore, a bellwether given its reliance on commerce and capital flows, chief financial officers are the most pessimistic in the region when it comes to profits this year, according to a survey by Bank of America Merrill Lynch.
"The big picture for these countries is that trend growth is now a lot slower than it was," said Gareth Leather at Capital Economics Ltd. in London, who has covered Asian economies for almost a decade.
Among the economies most vulnerable to Fed rate increases and subsequent capital flight are Indonesia and Malaysia, where foreign currency borrowing rose even as their local currencies weakened. The rupiah has fallen about 7 per cent this year against the dollar, and Malaysia's ringgit is down almost 8 per cent. In an attempt to deepen its safeguards, Indonesia sought a dollar swap line with the Fed, though was denied, according to an official familiar with the matter.
"In the event that Fed tightening causes global risk aversion to increase, Indonesia with its large current account and Malaysia with its high level of household debt are likely to be the most vulnerable," said Leather.
Bright spots remain, including signs of a pick-up in Vietnam and India. And other areas have perhaps deeper challenges - Brazil is facing a recession and Russia is already mired in one. More than 40 per cent of global growth comes from Asia, according to Deutsche Bank AG.
Yet with monetary policy struggling for traction and debt levels high, Asia's best years for expansion may be behind.
"We don't expect to see a big rebound," said Leather.