For most of the year, Asia has remained aloof from the financial chaos that plagued the countries in the West. The economies in the Asian/Pacific region continued to build up steam even as their markets sputtered in response to the markets in the rest of the world. Analysts voice concern that Europe’s deteriorating financial status and America’s stagnant growth will finally derail growth in the region.
Demand in Europe for Asian exports is dwindling. For certain economies, like South Korea, Taiwan, Hong Kong, and Singapore, exports remain crucial. Even China’s powerhouse manufacturing growth posted a slowdown. The PMI index came in at 48, the lowest level in almost 3 years, and a lower figure than expected by economists.
The concerns about sales of exports go both ways. Asian economies need the Western buyers for their goods. Yet, Western countries also have an increasing need for Asian countries to buy their products because countries in Europe are not strong consumers right now.
Projections from the IMF have all the Asian major players’ economies expanding this year. However, the expansion figures are less robust than last years, and IMF expects the growth pace to slow even more next year.
Recently, Indonesia and Australia lowered interest rates in response to the turmoil in European and US markets. Central banks in the region shelved plans to raise their rates. Concerns about less growth in their economies are overshadowing the threat of monetary inflation.
Japan remains an example of Economics 101. Despite the catastrophic effect of the earthquake and tsunami on the country, the yen remains very strong in the currency market. This causes all of their export goods to cost more in consumer markets, which have ratcheted back spending because of the recession. This causes the traditionally high profits from exports to slip lower. In an attempt to balance the situation, Japan proactively attempted to weaken the yen through direct intervention in the currency markets. Four times this year, the central bank sold yen for dollars in the hopes of diluting the yen’s strength thus dropping the prices on export goods.
As a result of the Euro crisis, a whole series of tighter capital rules are set for implementation next year. These new regulations may strangle the current rate of lending to emerging markets and Asia. However, given the gloomy prospects of Eurozone stabilizing any time soon, analysts fear that history may repeat itself in an unexpected shutdown in credit markets like occurred in 2008 when several major US banks collapsed. Asia would survive on lending from the region but would take a hit because finding alternative credit sources would not be immediate.
China, India and Indonesia‘s large populations and growing affluence transformed them into significant markets for goods. The increasing consumerism of these nations takes up some of the slack left by ebbing demand in the US and Europe.
Analysts feel Europe is currently in the same place American was three years ago. That means the pain will continue for the global economy for several years to come. Even three years after the first wave of recession, the US certainly has a long road back to a healthy and stable economy. The question is how much of an impact the Western monetary crisis will have on the region in the upcoming years of economic restoration.