Asia’s resistance to the West’s economic troubles is slowly wearing thin.
For much of this year, the economies of the Asia-Pacific region appeared to be blissfully isolated from the turmoil in other parts of the world. Asian stock markets fell along with those in the West, but the region’s economies continued to power ahead.
Within the past few weeks, however, cracks have emerged in the region’s mighty economies, and analysts and policy makers have become more concerned about the painful disruption that could spill into Asia as the situation in Europe continues to deteriorate and the United States struggles to pick up speed.
“The potential risks for Asia have increased” as the European crisis has moved beyond small peripheral economies like Greece, enveloping larger countries like Italy, Spain and even France, said Frederic Neumann, co-head of Asian economics at HSBC in Hong Kong. “It’s a whole different ball game now.”
The spreading economic troubles were underscored Wednesday when a closely watched gauge showed that Chinese manufacturing was contracting. The reading, published by HSBC, dropped from 51 in October to 48 in November, the lowest level in nearly three years and much lower than economists had expected. A reading of 50 is the dividing line between expansion and contraction.
The steep decline fanned worries about the spillover of the West’s problems into Asia. But it also reinforced nervousness about the effect in the opposite direction: the West increasingly needs a strong Asia to buy its goods as consumers at home stay on the sidelines.
The concern is that things are going to get worse before they get better.
“Europe is only at the beginning of its crisis,” said Pranay Gupta, chief
investment officer for the Asia-Pacific region at ING Investment Management in Hong Kong. “Europe is now where the United States was three years ago: The economic contraction is only just beginning.”
So far, the economic pain in Asia has been relatively muted, and much of the region remains on course for growth rates that most Western nations can only dream of.
The Chinese economy is set to expand 9.5 percent this year, according to projections from the International Monetary Fund last month. India is expected to grow 7.8 percent, Indonesia 6.4 percent, and many other Southeast Asian nations more than 5 percent, the I.M.F. estimates.
Those figures, however, are generally below the growth rates seen in 2010, and are likely to ease off further next year, the I.M.F. and most economists say.
Exports from Asia have been softening for months as demand in Europe, in particular, has slowed. Although many countries depend less on exports than they once did, the sector remains crucial for economies like those of Taiwan and South Korea and for the small, open economies of Hong Kong and Singapore, economists say.
Reacting to the worsening global environment, Indonesia and Australia have lowered interest rates in recent weeks. Most other central banks in the region have put off rate increases that seemed likely only months ago as they have become less concerned about inflation and more worried about growth.
In Japan, the pain has been compounded by the results of the devastating earthquake and tsunami of last March and by the persistent strength of the yen. Fanned by the economic difficulties in other parts of the world, the Japanese currency’s rise has made Japanese goods more expensive for shoppers abroad and has helped dent exporters’ profits.
With no room to lower already-low interest rates further, the government has resorted to direct intervention in the currency markets — selling yen for U.S. dollars — four times in little more than a year in its battle to weaken the yen.
In the financial sector, meanwhile, banks like HSBC, UBS and Nomura are cutting jobs around the globe. And although many would like to grow, rather than shrink, in the Asia-Pacific region, financial centers like Hong Kong and Singapore have not escaped the hiring freezes and job cuts. International Herald Tribune
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