Asia sizes up threats from faltering Europe, U.S.

Wednesday, 7 September 2011 01:31 -     - {{hitsCtrl.values.hits}}

Reuters: - Singapore’s finance minister said on Tuesday a global recession looked more likely than not and a Chinese official acknowledged China’s growth may slow to a 10-year low, highlighting Asia’s rising concern over its exposure to U.S. and European risks.

If Europe’s debt troubles deepen or the United States slips into another recession, Asia’s export-driven economies would be vulnerable through both trade and investment channels. Economists have already begun marking down growth forecasts while stocks have fallen across the region.

Japanese, Chinese and South Korean financial regulators discussed the global threats in a conference call on Tuesday, Japan’s financial services minister told a news conference.

“Asia will not be immune to a global slowdown,” said Tharman Shanmugaratnam, Singapore’s finance minister. “We are already at stall speed in the U.S. and Europe, which means we are now more likely than not to see a recession.”

Singapore, one of the world’s biggest trade hubs, is heavily exposed to global trade cycles and its economy contracted in the second quarter, compared with the prior three months.

Some economists predict another contraction in the July-to-September period, which would fit the commonly used recession benchmark of back-to-back negative quarters.

Tharman’s prognosis was gloomier than those of most U.S. and European officials, who still see the global economy escaping another recession.

World Bank President Robert Zoellick, speaking in Singapore at the same conference as Tharman, said another recession was unlikely although the risks were high.

But a surprisingly weak U.S. August employment report and mounting worries about European sovereign debt sustainability have heightened concerns of a downturn.

U.S. stock markets were expected to sell off when they reopened on Tuesday after a three-day holiday weekend. European shares fell sharply on Monday.

With growth constrained in most advanced economies, investors are looking to emerging markets to pick up the slack. But growth is already slowing in countries such as China, and with inflation stubbornly high, policymakers are not inclined to provide much of an artificial boost.

Huang Guobo, the chief economist at China’s currency regulator, said growth may ease to below 9 percent in 2012, but fighting inflation remained the top policy priority.

“The weakening global demand for Chinese exports will be a challenge,” Huang said. “Next year, if the situation continues, China’s growth rate may fall below 9 percent.”

Many private economists have already cut their 2012 growth forecasts for China, so a sub-9 percent reading next year would not come as a big surprise.

However, it would mark a significant slowdown. China, the world’s second biggest economy, managed to sustain growth of more than 9 percent even during the depths of the global financial crisis in 2008 and 2009.

China expects growth to average 7 percent over the next five years, so slipping below 9 percent in 2012 would not be a policy disaster. In fact, it might help to contain inflation, which hit a three-year high of 6.5 percent in July.

Data due on Friday is expected to show it moderated a bit in August, although it is almost certain to remain far above China’s annual target of 4 percent.

Asia’s advanced economies were also wary of global repercussions. Australia’s central bank held interest rates unchanged on Tuesday, as expected, but said the outlook for the global economy was less clear than it was earlier in the year.

Central banks in Japan, South Korea, Indonesia, Malaysia and the Philippines hold policy-setting meetings later this week, and the dimming global picture will probably persuade all of them to hold interest rates steady.