By Karen Remo-Listana
Emirates Business 24|7 (UAE)
Emerging markets in Asia should not underestimate current global financial challenges as further surprises cannot be ruled out, the World Bank has warned.
The crisis in the United States has deepened as asset prices struggle to find a new equilibrium and financial institutions go through a painful process of de-leveraging and recapitalisation, the bank said.
And previous experience of real estate price busts suggest they can last twice as long and be twice as deep as equity price busts. This is the first financial crisis in the post-securitised world, wherein most intermediation is done through securities markets not depository institutions. "It could take even longer to resolve," the bank said in a report.
Despite the popularity of the decoupling theory, some analysts believe the current mild recession in the US and the financial crisis in Europe will badly hurt Asian economies, which still rely heavily on these two export markets for growth.
Decoupling holds that European and Asian economies, especially emerging ones, have broadened and deepened to the point they no longer depend on the US for growth, leaving them insulated from a severe slowdown there, even a full-fledged recession. Faith in the concept has generated strong out-performance for stocks outside the US.
However, sceptics of the theory point to indicators of a slow down. Growth in developing East Asia will decline by around one to two percentage points to around 8.5 per cent in 2008 as a result of the unfolding financial turmoil in the US and the resulting global slowdown, said the World Bank's latest six-monthly review of the East Asia and Pacific region's economies.
Analysts at Lehman Brothers believe economic growth in Singapore could slump to as low as 2.5 per cent this year if the worst-case scenario of a recession occurs. The official forecast is for growth of 4.5 per cent to 6.5 per cent.
And the Asian Development Bank lowered its 2008 forecast for China's economic growth to 10 per cent from 10.8 per cent. That revision came a day after the World Bank cut its 2008 forecast for China by 0.2 percentage points to 9.4 per cent. Earlier this month, the United Nations Economic and Social Commission for Asia and the Pacific said in a report that China's economic growth would decelerate in 2008 because of slowing exports and the government's cooling measures.
Investment banks including Goldman Sachs and China International Capital Corp have also agreed that growth will be lower, indicating rising concern over the impact of slower world demand and rising domestic inflation.
Economists said while the Asian region's economies have managed to stand on their own feet in recent years, their fortunes are still closely tied to external conditions. The slowdown in demand for imports in the US will have an impact on Asian economies, particularly those that are dependent on exporting to the US, a report by Euromonitor International said.
Asia has positioned itself as a major supplier of exports and outsourcing due to its low labour costs and skilled technical knowledge. The US, meanwhile, is a major destination for these exports.
Figures from Euromonitor show in 2007 the US received 34.6 per cent of its imports from the Asia Pacific region. About 22.7 per cent of Japan's exports went to the US. Pakistan and China were major exporters of manufactured goods with exports to the US at 21.3 per cent and 21 per cent, respectively.
Bangladesh, Cambodia, Indonesia, Vietnam and the Philippines are major textiles exporters. Malaysia, Indonesia, Kazakhstan, and Tajikistan on the other hand are suppliers of energy products, such as oil, gas and biofuels. Bangladesh, China, Pakistan and India are also suppliers of food commodities, such as rice and grain.
For countries reliant on sending a large amount of low-level manufactured or textile goods to the US, the effect of a slowdown will be highly detrimental, Euromonitor said.
"For example, since Cambodia sends over half its exports to the US, the direct effect of lower sales in the US will be to reduce immediate business profits, with negative connotations for jobs and wages," Euromonitor, an independent business intelligence provider, said. This impact will be felt all the more acutely since social conditions are poor, with GDP per capita being only $544 in 2007, it said.
This means a drop in income will be felt to a disproportionately high effect, indicating a knock-on negative impact on consumer spending in Cambodia.
The crisis in the United States has deepened as asset prices struggle to find a new equilibrium and financial institutions go through a painful process of de-leveraging and recapitalisation, the bank said.
And previous experience of real estate price busts suggest they can last twice as long and be twice as deep as equity price busts. This is the first financial crisis in the post-securitised world, wherein most intermediation is done through securities markets not depository institutions. "It could take even longer to resolve," the bank said in a report.
Despite the popularity of the decoupling theory, some analysts believe the current mild recession in the US and the financial crisis in Europe will badly hurt Asian economies, which still rely heavily on these two export markets for growth.
Decoupling holds that European and Asian economies, especially emerging ones, have broadened and deepened to the point they no longer depend on the US for growth, leaving them insulated from a severe slowdown there, even a full-fledged recession. Faith in the concept has generated strong out-performance for stocks outside the US.
However, sceptics of the theory point to indicators of a slow down. Growth in developing East Asia will decline by around one to two percentage points to around 8.5 per cent in 2008 as a result of the unfolding financial turmoil in the US and the resulting global slowdown, said the World Bank's latest six-monthly review of the East Asia and Pacific region's economies.
Analysts at Lehman Brothers believe economic growth in Singapore could slump to as low as 2.5 per cent this year if the worst-case scenario of a recession occurs. The official forecast is for growth of 4.5 per cent to 6.5 per cent.
And the Asian Development Bank lowered its 2008 forecast for China's economic growth to 10 per cent from 10.8 per cent. That revision came a day after the World Bank cut its 2008 forecast for China by 0.2 percentage points to 9.4 per cent. Earlier this month, the United Nations Economic and Social Commission for Asia and the Pacific said in a report that China's economic growth would decelerate in 2008 because of slowing exports and the government's cooling measures.
Investment banks including Goldman Sachs and China International Capital Corp have also agreed that growth will be lower, indicating rising concern over the impact of slower world demand and rising domestic inflation.
Economists said while the Asian region's economies have managed to stand on their own feet in recent years, their fortunes are still closely tied to external conditions. The slowdown in demand for imports in the US will have an impact on Asian economies, particularly those that are dependent on exporting to the US, a report by Euromonitor International said.
Asia has positioned itself as a major supplier of exports and outsourcing due to its low labour costs and skilled technical knowledge. The US, meanwhile, is a major destination for these exports.
Figures from Euromonitor show in 2007 the US received 34.6 per cent of its imports from the Asia Pacific region. About 22.7 per cent of Japan's exports went to the US. Pakistan and China were major exporters of manufactured goods with exports to the US at 21.3 per cent and 21 per cent, respectively.
Bangladesh, Cambodia, Indonesia, Vietnam and the Philippines are major textiles exporters. Malaysia, Indonesia, Kazakhstan, and Tajikistan on the other hand are suppliers of energy products, such as oil, gas and biofuels. Bangladesh, China, Pakistan and India are also suppliers of food commodities, such as rice and grain.
For countries reliant on sending a large amount of low-level manufactured or textile goods to the US, the effect of a slowdown will be highly detrimental, Euromonitor said.
"For example, since Cambodia sends over half its exports to the US, the direct effect of lower sales in the US will be to reduce immediate business profits, with negative connotations for jobs and wages," Euromonitor, an independent business intelligence provider, said. This impact will be felt all the more acutely since social conditions are poor, with GDP per capita being only $544 in 2007, it said.
This means a drop in income will be felt to a disproportionately high effect, indicating a knock-on negative impact on consumer spending in Cambodia.
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