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09 December 2023

Asian economies, less dependent on US, seen weathering possible US recession

By Agencies



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 United States would drag on Asian growth by eroding demand for exports, a rapidly growing middle class is fueling orders for automobiles, 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. China, in particular, has “more it can bring to buffer whatever happens in the US.”

A drop of 1 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.

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,” 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 enters a recession, India’s growth will likely slow to 7 per cent from the current rate of about 9 per cent, he predicted.

Asian stock markets - many of which had stellar runs last year - have tumbled in recent weeks amid worries that a slowdown in the US will hurt exporters’ profits. Since the start of the year, Japan’s Nikkei 225 index has declined more than 12 per cent, while Hong Kong’s Hang Seng index is down more than 11 per cent.

Markets fell again Monday in Asia as investors appeared unimpressed with the stimulus plan US President George W. Bush announced Friday.

Still, some analysts say some stocks appear oversold and the drop may present a buying opportunity.

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 that the nation’s economic growth will drop this year to about half of the 2 per cent it has marked in recent years.

“The damage from the overseas economic problems hasn’t really surfaced yet,” Kono said. “But it will be coming.”

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.

Associated Press writers Joe McDonald in Beijing, Yuri Kageyama in Tokyo and Gillian Wong in Singapore contributed to this report. (AP)