Wednesday, September 22, 2010

Some Thoughts on Asia

Roubini Global Economics in their September update to their 2010 Outlook write:
We still see emerging Asia outperforming other regions in 2010-11, but with exports accounting for around 46% of Asia's GDP, the region is unlikely to decouple from weaker-than-expected recoveries and deleveraging in the U.S. and EU. In most Asian countries, consumption and capex—key growth drivers in 2009-10—as well as labor markets, manufacturing and services remain structurally tied to exports destined for the U.S. and EU. As a result, domestic consumption and regional and emerging market (EM) trade will only deflect the blow from a global slowdown in the coming months while failing to shield Asian growth entirely. A U.S. double dip would result in larger-than-expected declines in Asian capex and exports, dampening momentum in labor markets and consumer spending (though cautious hiring during 2009-10 would prevent drastic layoffs and wage cuts).
This is very true, especially on a short-term, where it is difficult to shift quickly away from an export driven business model. However, on a long-term basis, as the domestic business and consumer markets develop the U.S. and EU economies began to have significantly less impact on the Asian region.

RGE goes on to write:
Though the consequent fiscal and monetary stimulus across the Asia/Pacific region would depend on the extent of each country's trade and financial linkages, the size—and effectiveness—of such measures would likely be smaller than in 2008.
This is true especially for China which was aggressively intervening in the markets in 2008 to prop up the dollar against the yuan. This intervention has limited somewhat as China appears to be buying Japanese yen and Korean won with its trade surplus money and is printing a lot less money because of domestic inflationary concerns.

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