Deflation risks mount as debt increases in Asia

Asia's rapid accumulation of debt in recent years is holding back central banks from easing monetary policy to fight the risk of deflation, endangering private investment needed to boost faltering growth, according to Morgan Stanley.

Debt to GDP ratio in the region excluding Japan rose to 203 percent in 2013 from 147 percent in 2007, with most of the increase led by companies, analysts led by Chetan Ahya in Hong Kong wrote in a report on Wednesday. The ratio is close to or has exceeded 200 percent in seven of 10 nations including China and South Korea, they said.

Deflation risk is spreading from Europe to Asia as oil prices plunge, raising the specter of companies and consumers postponing spending and threatening a recovery in the global economy. Asia could take its cue from the US where a policy of keeping real rates low after the 2008-09 global financial crisis encouraged private-sector investment and boosted productive growth, Morgan Stanley said.