The past several months has started to shake assumptions, based on Asian nations’ ability to develop more internal markets than in the past, made regarding immunity from the downturn. The latest set of slowdowns has really had an impact on South Korea, Taiwan, Australia, Thailand, Singapore, Malaysia and others. Even a member of the So-called BRICs Nations, India, has been shaken by these latest developments, as well. The short answer as to why these economies are feeling the pinch is that they are still far from being independent of the Western consumer.
Without the demand that has traditionally come from the US and Europe, the Asian economies are discovering that demand is not sufficient to maintain their expected level of economic growth. The domestic markets are far larger than they have been in the past, but they are still meager in comparison, which is bad news for the exporting sector.
The Chinese have been aggressively trying to shift the patterns of the past but, even there, it has been slow going in many respects. It has been allowing the currency to appreciate just a little more than in the past as a means by which to combat inflation. This makes prices at home a little more reasonable at the expense of the exporters. There has been an impressive rate of retail growth, but the country doesn’t want to see consumers saddled with the debt loads that exist in the United States and Europe. Therefore, debt has been pulled back to some degree.
Analysis: The impact is especially harsh for those nations that emulated Japan in terms of economic organization. The Japanese economy has been moribund for years at the same time that its corporations have become bigger players in the world. They essentially have transcended Japan and shifted production/sales to wherever the opportunities have been greatest. That isn’t necessarily for the Japanese economy as a whole. Other Asian states are experiencing something akin to this, as Korean companies become global alongside those from Taiwan and Singapore. The Japanese also are under extreme stress at the moment, as they are still dependent on their export sector and have had to fight the flight to the yen. Investors have surged out of the dollar and euro in search of stability and have elected to go after the yen for some reason. As the currency appreciates, the export sector could be affected negatively, and the stress on the economy becomes more profound.
Source: Strategic Global Intelligence Brief/NACM Economist Chris Kuehl
Chris Kuehl is a Board Member of BIIA