10th November 2011
He said that the region risked weaker credit availability because European banks were slowing lending. It is another way in which the ripples from the Eurozone crisis are spreading, but perhaps more importantly it exposes the – admittedly optimistic – view that Asia could glide serenely above the crisis elsewhere.
Gulliver added that "The strong increases in credit availability in Asia that has supported demand growth cannot continue indefinitely," This FT piece points out that Continental European banks were responsible for 21 per cent of the $2,520bn of international bank loans outstanding in Asia excluding Japan as of the second quarter of 2011, according to the Bank for International Settlements.
It also shows that Asia is still vulnerable to a slowdown in the Eurozone economies:
"China has supplanted the West as the largest trading partner for many Asian economies, but that doesn't fully protect them. Some of what China imports from its Asian neighbours goes into making other goods destined for U.S. and European ports."
This piece from the ECB gives the technical analysis of trade linkages. The data is from 2009, but shows the important trends.
Its conclusion is that the assumption that Chinese demand has replaced Western demand in Asia is erroneous:
"First, only about one-third of the value added in emerging Asian countries is determined by external demand, significantly lower than the 50% exposure suggested by the aggregate trade data, while domestic demand contributes around two-thirds to the value added. Second, the dependence of emerging Asia's value added on export markets has steadily risen since 1995, a phenomenon in line with increasing global trade integration, and a clear evidence against the decoupling view. Third, although intraregional and Chinese markets have both gained importance, they still account for only around 7% of the final demand."
It is a conclusion that the IMF appears to have drawn as well. Managing director Christine Lagarde gave a speech at the International Finance Forum in Beijing emphasising the importance of Asia to future economic stability. She says:
"The rise of Asia in the global economy is really the defining economic success story of modern times. And so today, it is no surprise that Asia is propelling the global recovery."
The relative performance of Asian stocks in recent months suggests that Asian markets are still seen as occupying their traditional role as a warrant on world growth. The average Asia Pacific ex Japan fund is down 11.5% over the past six months, not as much as the Europe ex UK sector (down 19.9%), but still lower than the US and UK fund sectors.
However, there is a counter argument. China and other Asian countries have been raising interest rates to try and slow their economies. It may be that the Eurozone crisis and reduced availability of credit does what monetary policy has been slow to do. Chinese inflation is already dropping – Could it be just what the region needs?
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