Bangkok: Asia would be able to weather any recession in the United States, analysts say, because rising trade and investment within the region make it less dependent on the U.S. economy than in the past.
While a severe downturn in the United States would drag on Asian growth by eroding demand for exports, a rapidly growing middle class is fueling orders for automobiles, electronics and housing, much of which will be supplied from Asia itself.
Voracious demand for oil, iron ore and other commodities to build roads, sewage systems, and office buildings, especially in the booming economies of China and India, will also help sustain the region through any U.S. slowdown.
“The U.S. economy is not that important anymore,” Hans Timmer, a World Bank economist, said in Singapore earlier this month.
Excluding Japan, 43% of Asia’s exports go to other nations in the region, Lehman Brothers calculates, up from 37% in 1995.
“China and India represent a bigger presence on the world stage than just a half dozen years ago,” said David Cohen, director of Asian forecasting at Action Economics in Singapore. China, in particular, has “more it can bring to buffer whatever happens in the U.S.”
A drop of 1 percentage point in U.S. economic growth would shave 1.3 percentage points from China’s growth rate due to lower exports, Citigroup estimates.
Since China is growing so fast, that isn’t likely to make much of a dent. China’s economy will still expand 11% this year, slightly slower than in 2007, Citigroup projects. Lehman Brothers forecasts 2008 growth will drop to 9.8%, still remarkably strong.
Most regional projections show some drop-off from 2007 but still reflect healthy expectations.
The U.N. Economic and Social Commission for Asia and the Pacific, or ESCAP, said 38 developing economies in the region, including China and India, will expand an overall 7.8% this year, slightly lower than growth of 8.3% in 2007.
Global growth, meanwhile, will moderate to 3.3% in 2008 from 3.6% last year, with any slowdown in the U.S. largely offset by growth in developing countries, the World Bank projects.
But Rajeev Malik, an economist with JPMorgan Chase in Singapore, cautioned that growth in China and India could not make up all the slack of a U.S. downturn.
“Demand in industrial countries is still pretty important for the rest of Asia,” Malik said. “While China, and to some extent India, offer some offsetting demand, there will still be some downshifting in activity if the U.S. goes into recession.”
If the U.S. economy does contract, India’s growth will likely slow to 7% from the current rate of about 9%, he predicted.
Asian stock markets, many of which had stellar runs last year, have tumbled in recent weeks amid worries that a slowdown in the U.S. will hurt exporters’ profits. Since the start of the year, Japan’s Nikkei 225 index has declined more than 12%, while Hong Kong’s Hang Seng index is down more than 11%.
Markets fell again on Monday, January 21, in Asia as investors appeared unimpressed with the stimulus plan U.S. President George W. Bush announced on Friday, January 18.
Still, some analysts say some stocks appear oversold and the drop may present a buying opportunity given the region’s growth potential.
Japan, the world’s second-largest economy, may suffer the most from a U.S. contraction.
Ryutaro Kono, chief economist at BNP Paribas in Tokyo, predicts that the nation’s economic growth will drop this year to about half of the 2% it has marked in recent years.
“The damage from the overseas economic problems hasn’t really surfaced yet,” Kono said. “But it will be coming.”
Lower demand for exports could even have a silver lining for China by restraining inflation, which has soared to the highest level in more than a decade.
“If China’s exports slow down significantly, you definitely will see lower prices rather than inflation,” said Minggao Shen, an economist with Citigroup in Beijing.
But he did warn that weaker export demand could leave Chinese manufacturers with overcapacity problems.