Eye of the economic storm moves east
Sep 06, 2012
China’s economy shows no sign of turning the corner. An official index tracking manufacturing activity slipped to a nine-month low in August. A more closely watched unofficial version by HSBC slid to a three-year low, with new export orders falling at their fastest pace since 2009. Nonperforming loans at China’s five biggest lenders jumped by 27% in the first half of the year. Surveys covering manufacturing in other Asian markets showed that activity in Korea and Taiwan continued to shrink.
What the commentators said
Many investors had hoped that “Asia’s fast growth would offer shelter from the storm of deleveraging [and] government bumbling” in Europe and America, said Robert Guy in the Australian Financial Review. But Asia hasn’t been able to decouple. Instead, “the woes of the slow-growing West” are undermining the trade-dependent economies of Asia.
Rattled consumers and businesses, especially in crisis-stricken Europe, are cutting back on purchases of Asian goods. According to Nomura, the year-on-year growth rate of Asia’s overall exports turned negative in July for the first time since the global financial crisis. Asia’s export growth to the EU slumped from -5% year-on-year in June to -15.6% in July. In Korea, the only country to have released export data for August so far, exports to Europe were down by an annual 9.3%.
Those to America had fallen 2% on a year earlier. China’s export slowdown also affects the rest of Asia indirectly, as Guy pointed out. The region ships many intermediate goods to the Middle Kingdom before the final products are exported to the West. The IMF estimates that a 1% drop in China’s export growth shaves two-thirds of 1% off the figure for other Asian states.
Hong Kong and Singapore, both particularly export-dependent, shrank in the second quarter. Elsewhere, momentum is set to ebb as “weak exports sooner or later spill over into weak domestic demand”, said Erik Lueth of RBS. There is scope for central banks to cut interest rates. But with China’s economy turning down much faster than expected and the rest of the region faltering, the “eye of the storm”, as Stephen Jen of SLJ MacroPartners put it, is moving East.
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