Asia is now less dependent on the US economy
(BANGKOK) Asia would be able to weather any recession in the United States, analysts say, because rising trade and investment within the region make it less dependent on the US economy than in the past.
While a severe downturn in the US would drag on Asian growth by eroding demand for exports, a rapidly growing middle class is fuelling orders for cars, electronics and housing - much of which will be supplied from Asia itself.
Voracious demand for oil, iron ore and other commodities to build roads, sewage systems, and office buildings - especially in the booming economies of China and India - will also help sustain the region through any US slowdown.
‘The US economy is not that important anymore,’ Hans Timmer, a World Bank economist, said in Singapore earlier this month.
Excluding Japan, 43 per cent of Asia’s exports go to other nations in the region, Lehman Brothers calculates - up from 37 per cent in 1995.
‘China and India represent a bigger presence on the world stage than just a half dozen years ago,’ said David Cohen, director of Asian forecasting at Action Economics in Singapore.
A drop of one percentage point in US economic growth would shave 1.3 percentage points from China’s growth rate due to lower exports, Citigroup estimates.
Since China is growing so fast, that isn’t likely to make much of a dent. China’s economy will still expand 11 per cent this year, slightly slower than in 2007, Citigroup projects.
Lehman Brothers forecasts 2008 growth will drop to 9.8 per cent, still remarkably strong.
Most regional projections show some drop-off from 2007, but still reflect healthy expectations.
The UN Economic and Social Commission for Asia and the Pacific said 38 developing economies in the region - including China and India - will expand an overall 7.8 per cent this year, slightly lower than growth of 8.3 per cent in 2007.
Global growth, meanwhile, will moderate to 3.3 per cent in 2008 from 3.6 per cent last year, with any slowdown in the US largely offset by growth in developing countries, the World Bank projects.
But Rajeev Malik, an economist with JPMorgan Chase in Singapore, cautioned that growth in China and India could not make up all the slack of a US downturn.
‘Demand in industrial countries is still pretty important for the rest of Asia,’ Mr Malik said. ‘While China, and to some extent India, offer some offsetting demand, there will still be some downshifting in activity if the US goes into recession.’
If the US economy does contract, India’s growth will likely slow to 7 per cent from the current rate of about 9 per cent, he predicted.
Asian stock markets have tumbled in recent weeks amid worries that a slowdown in the US will hurt exporters’ profits.
Still, some analysts say some stocks appear oversold and the drop may present a buying opportunity given the region’s growth potential.
Japan, the world’s second-largest economy, may suffer the most from a US contraction.
Ryutaro Kono, chief economist at BNP Paribas in Tokyo, predicts the nation’s economic growth will drop this year to about half of the 2 per cent it has marked in recent years.
Lower demand for exports could even have a silver lining for China by restraining inflation, which has soared to the highest level in more than a decade.
‘If China’s exports slow down significantly, you definitely will see lower prices rather than inflation,’ said Minggao Shen, an economist with Citigroup in Beijing.
But he did warn that weaker export demand could leave Chinese manufacturers with overcapacity problems. — AP