Asia Seen Weathering Any US Recession

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Asia Seen Weathering Any US Recession
Monday January 21, 3:08 pm ET
By Thomas Hogue, AP Business Writer Asian Economies, Less Dependent on US, Seen Weathering Possible US Recession

BANGKOK, Thailand (AP) -- 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 percent of Asia's exports go to other nations in the region, Lehman Brothers calculates -- up from 37 percent 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 says.

Since China is growing so fast, that isn't likely to make much of a dent. China's economy will still expand 11 percent this year, slightly slower than in 2007, Citigroup projects. Lehman Brothers forecasts 2008 growth will drop to 9.8 percent.

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."

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 percent 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."

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 corporate profits.

Hong Kong's blue-chip Hang Seng index plummeted 5.5 percent Monday, its biggest percentage drop since the Sept. 11, 2001, terror attacks. Japan's benchmark Nikkei 225 index slid 3.9 percent to its lowest close in more than two years, and China's Shanghai Composite index plunged 5.1 percent.

Lower demand for Chinese exports could even have a silver lining for China by restraining inflation, which has soared to the highest level in more than a decade.

Associated Press writers Joe McDonald in Beijing, Yuri Kageyama in Tokyo and Gillian Wong in Singapore contributed to this report.

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Lehman says Asia not likely to suffer downturn over next 2 years
Wednesday, 23.01.2008

Asia is not likely to suffer a downturn over the next two years if the US does not fall into a full blown recession, Lehman Brothers forecast in its outlook for 2008. Investors all across Asia may be nervous about the outlook for the US economy, but the financial services firm is taking a positive stance.

Lehman Brothers' global chief economist Paul Sheard said, "A lot of people, of course, are focusing now on the risk of a recession in the US. We do think the risk is quite high; we would put it at around 40 per cent. And that's a lot higher obviously than a normal year where it's probably just a five or six (per cent) chance that the economy could slip into recession."
But he expected the worst to be averted.

"The monetary easing from the Fed and the other fiscal policies that are likely to be implemented may help the economy to skirt recession. But it's a close call if the economy would be hit by another shock or a couple of shocks that could certainly tip the economy into recession," he said.

The firm said it expects Asian economies, excluding Japan, to grow 7.5 per cent as a whole this year, down one point from 2007.

Although a recession in the US could shave that expansion by some 4.5 percentage points this year, Lehman Brothers is taking a bullish view for now. Robert Subbaraman, Lehman Brothers' chief economist for Asia (ex-Japan), said: "I would say that Lehman Brothers has an overweight position on Asia-ex-Japan and that we are bullish on the region for the medium-term perspective.

"So (for) medium-term, the equity market in Singapore and in Asia should do well. Singapore's in a very good position to be a hub, a service center to India and the other Southeast Asian economies which should be very positive for Singapore in the medium term."

The financial services firm is predicting the Singapore economy to grow 5.3 per cent this year, in line with the government forecasts.

Source: Channel News Asia