Sept. 9 (Bloomberg) -- Asian central banks may find it difficult to tighten monetary policy “meaningfully” due to political constraints caused by high unemployment, UBS AG said.

Jobless levels may remain “uncomfortably high” in the region for the next year or two, Duncan Wooldridge, chief Asia economist at UBS in Hong Kong, wrote in a note to clients yesterday. “Look for interest rates to remain on hold in most economies across Asia and for loose liquidity conditions.”

Asia’s export-focused manufacturers have been hit hard by the worst global recession since the 1930s, with the Asian Development Bank estimating last month jobs in the industry fell by as much as 7 percent through the first quarter from a year earlier. High unemployment coupled with weak inflation should keep interest rates in the region on hold this year before “modest” increases in 2010, according to UBS.

“Monetary tightening is likely to come only slowly and probably not until next year,” Wooldridge said. Asian jobless rates will probably peak in the next quarter or two, he added.

Rising unemployment has been “more pronounced” in Asia’s more advanced economies such as China, South Korea, Taiwan and Singapore, the ADB said in last month’s report. Jobless rates may also mask movements from manufacturing to “informal jobs” and growing underemployment, the Manila-based lender said.

China’s urban unemployment rate rose to 4.3 percent in the first six months of 2009 from 4.2 percent at the end of 2008, the state-run Xinhua News Agency reported in July. In January, the government said its target for this year’s jobless rate was 4.6 percent, which would be the highest level since 1980.

Global Crisis

As many as 41 million Chinese workers have lost their jobs during the global financial crisis, about 40 percent of the worldwide total, and 23 million remain out of work, the South China Morning Post reported in Hong Kong today. It cited research by the Chinese Academy of Social Sciences.

Taiwan’s unemployment rate climbed to a record in July as companies held off on hiring because of the island’s recession, shutting graduates out of jobs. The seasonally adjusted rate increased to 6.01 percent, the most since government data began in 1978.

South Korea’s jobless rate fell in July for the first time since October 2008, dropping to 3.8 percent from 4 percent in June, which was the highest in more than eight years.

The unemployment rate in Singapore held at 3.3 percent in the second quarter, the most since 2005.

Trade ‘Upswing’

Accelerating economic growth across Asia should see unemployment rates in the region peak in the second half of 2009, according to UBS.

“Most economies in the region look set to benefit from an upswing in global trade in the second half of 2009 and the first half of 2010,” Wooldridge said. “As production rises across the region, employment is likely to stabilize and consumer confidence should rise as a consequence, leading to some pickup in final demand.”

Second-quarter gross domestic product figures show Asian economies are “turning up,” he said.

Singapore and Japan exited recession last quarter and the Philippine economy expanded at three times the pace expected by economists. Malaysia’s GDP shrank less than analyst estimates.

Asia is in the “next stage” of recovery from the global slump, Lee Jong-Wha, chief economist at the ADB, said Aug. 26. Economies in the region are rebounding after Asian policy makers cut interest rates to unprecedented lows and governments unveiled more than $950 billion of stimulus measures.

“Asian central banks need to maintain easy policy until business confidence has clearly recovered,” said Tai Hui, the Singapore-based head of Southeast Asian economic research at Standard Chartered Plc. “Hiking policy rates too soon would have a negative impact on both the general economy and the financial markets.”

Economies in Asia have “bottomed and will improve during the second half of 2009 and 2010,” Wooldridge said in yesterday’s note. “We expect Asia ex-Japan to grow 4.1 percent this year and 6.6 percent in 2010.”

To contact the reporter on this story: Michael Dwyer in Singapore at mdwyer5@bloomberg.net

Last Updated: September 9, 2009 02:30 EDT