Asia the best place…

Posted By asiagender.net on July 30, 2010

The gloomsters would have us believe that the end of the world is upon us, that the world "recession/depression is about to descend.

China is slowing, cutting back purchases of commodities, like iron ore, as Mount Gibson (our tiny 4th placed iron ore exporter) revealed to the ASX yesterday.

Likewise Japanese machinery orders fell again in August, which was taken as a 'bad sign' when in fact it merely matched the slide in industrial output and exports seen in the past month or so. With Japanese car production down, you'd expect machinery orders to be down as well.

Yes it was a third successive fall, and yes Japan is experiencing a downturn, but like Australia, its banks are now sound and very well-resourced, as are Japanese companies.

Life is tough in world markets, especially in the US and especially for cars, machine tools, consumer entertainment and IT products, but Japan is not the Japan of the terrible period 1989 to 2002.

China cut rates for the second time in less than a month, South Korea, Taiwan and Hong Kong matched the rate cuts of the bigger central banks (but Australia remains out in front).

Japan didn't cut rates because they are already at half a per cent and there's not much room to go. In fact Hong Kong's cut was the second in as many days after the banks trimmed the margin over a key US rate for basing local rates on Wednesday.

Some commentators took that as being symbolic: in reality it's just another example of what happens when you have a bubble and you don't tackle it head on, as the rest of the world is now slowly doing with the credit crunch/freeze.

China's rates are now 0.54% lower in less than a month: sounds like they are taking advantage of the drop in headline inflation in the last four months to try some stimulation.

In fact these events are all symptomatic of a region and economies being hit by the swirling forces from the great credit crunch and freeze. It would be natural for that to happen, but it is not the end of the world, nor will the Asian region be as rattled as the US, Europe and the UK.

Even sluggish Japan will be doing better than the US, Europe and the UK by this time next year, according to the latest forecasts from the International Monetary Fund this week.

It was a gloomy and, some would argue, more realistic World Economic Outlook from the IMF with its grim message: "The world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s".

But there are hints and figures throughout the gloomy report that provide some little rays of sunshine for Australia: we are not the basket case some here would have us believe, although economic conditions have worsened globally, hence the 1% rate cut by the Reserve Bank this week.

The strongest growth this year and next will be in the Asian region, the area we have become 'coupled' to: in fact the IMF's much reduced 3% estimate for the world next year depends exclusively on growth in Asia, led by China and India.

Here's what the Fund said about what it called "Emerging Asia", which excludes Australia, South Korea, Japan, Taiwan, New Zealand and Singapore.

"Growth in the region is projected to moderate to 7¾ percent in 2008 and 7 percent in 2009 from 9¼ percent in 2007. Weakening external demand is likely to weigh on exports, but, in some cases, the impact may be mitigated by still-loose macroeconomic policies and currency depreciation. Investment will also moderate, mainly because of deteriorating export prospects.

"Consumption will ease because of still-high fuel and food prices, although subsidies, which are common in the region, may cushion the impact on purchasing power. The risks to the outlook are firmly to the downside.

"The main concern is that a buildup of stress in the global financial system and a sharper-than anticipated global slowdown could further weigh on activity. On the upside, domestic demand may prove more resilient, with falling commodity prices providing a boost to real incomes."

"The WEO notes that commodity prices remain at much higher levels in real terms than at any time in the past 20 years, despite some correction since mid-July amid the slowdown of the global economy.

Pages: 1 2 3

Categories: Asia
Tags: