Author: CHUNG Yoon Ngan
Date: 03-05-12 01:08
http://www.chinadailyapac.com/article/cracking
Cracking up?
By Karl Wilson
January 6, 2012 - 12:01pm http://www.chinadailyapac.com
China Daily
A global recession is a strong possibility in 2012 which is predicted to
be a year of make or break with growth projected between 3 and 4 percent.
Economists believe unless Europe's debt turmoil subsides and the US economy
recovers, the world faces an uncertain year, including Asia that is expected
to experience some moderation due to weaker eurozone demand.
However, experts say Asia appears to be one of the few bright spots even
though growth is slowing with estimates for this year varying from between
4 and 8 percent.
Inflation will remain a major concern for many Asian economies along with
bank liquidity problems, but most analysts agree the region is well placed
to deal with both.
China, which saw a decade of double-digit growth, can expect around 8 to
9 percent this year while India about 7 to 8 percent.
Japan might be lucky to see growth of around 2 percent after negative growth
in 2011. Much of this, however, will be attributed to re-building costs
following the devastating earthquake and tsunami in March last year.
Words of caution have been issued against allowing inflationary pressures
to build up in China that has seen its housing market overheated, and its
public finances in a less than healthy state. High domestic savings rates
are the counterpart to large current account surpluses, which also make
China overexposed to turmoil on global markets.
And it is the policy decisions in Europe and the US that "hold the key to
the global growth outlook", says Joachim Fels, the global head of Morgan
Stanley's economic team, in the investment bank's outlook for 2012.
But with a presidential election due in the US in November, no one is expecting
any serious moves on the economic front until after a new president is sworn
in.
"Our bear case is a full-blown recession, and it won't take much to tip
the balance. Our base case assumes European governments make a big step
towards fiscal integration soon that stabilizes confidence, and that the
US Congress extends most of this year's stimulus," Fels says.
"Against the backdrop of recent policy mistakes, these assumptions may seem
heroic. Failure on these fronts would risk a full-blown recession in the
US and Europe, with global GDP growth falling below the 2.5 percent recession
threshold," he adds.
The main focus will be on Europe and more importantly the eurozone with
its sovereign debt and bank liquidity problems which have been at the center
of much of the global financial turmoil over the past two years.
Adam Carr, a Sydney-based senior economist with the global interdealer and
independent analyst group ICAP, believes "the elephant in the room" is Europe.
"Everything hinges on Europe....that is the bottom line," he said in an
interview recently.
The acting chief executive of the ANZ Banking Group, Graham Hodges, was
quoted by the Australian Financial Review as saying, "We (ANZ) don't see
a sudden end to the European crisis. If there was a straightforward answer,
it would have been done."
TD Securities, in its outlook, says, "While we may ultimately leave 2012
in a better position than when we started it, it will be a bumpy ride to
get there. The all-consuming European crisis has almost certainly not yet
reached its peak, and it will continue to weigh on risk assets until it
is resolved. We think that the resolution will be constructive, but until
then volatility is a given."
Iwan Azis of the Manila-based Asian Development Bank's (ADB) office of regional
economic integration says the turmoil in Europe poses a "serious" threat
to the economies of emerging East Asia.
"The region's policymakers must be prepared to act promptly, decisively
and collectively to counter what could be an extended global economic slowdown,
" Azis wrote in the latest edition of the bank's Asia Economic Monitor.
The semi-annual report assessed the 10 ASEAN economies - Brunei; Cambodia;
Indonesia; Laos; Malaysia; Myanmar; the Philippines; Singapore; Thailand;
and Vietnam - as well as those of the Chinese mainland; Hong Kong and South
Korea.
The ADB expects the eurozone economy to expand 0.5 percent this year with
the US economy growing by 2.1 percent. For 2011, ADB had forecast growth
of 1.7 percent and 1.6 percent for the two economies respectively.
Economist and academic Jonathan Story agrees that any "serious and long-term
stagnation in Europe" will have an impact on Asia.
"It is possible that Europe - the world's number one 1 emporium - can
recover from its self-inflicted predicament,' Story tells China Daily Asia
Weekly.
The emeritus professor of International Political Economy at the INSEAD
Business School says observers should watch carefully whether the US can
extract itself from its policy deadlock in Congress, and whether Euroland
countries can work their way through to a compromise whose outlines are
not difficult to discern.
"The compromise has to be a mixture of Keynesian macro-economic policy through
EU institutions, fiscal consolidation, and deep labor market and welfare
reforms. Of course, you are not wrong to be pessimistic, given the failures
in leadership that we have witnessed over the past year," he says.
Story argues that if there is very little prospect for relief from developed
markets and governments, then Asian countries have to think more about generating
the conditions for sustainable development in the region.
"This, too, is easier said than done. One component, and a crucial one,
clearly has to be free trade. Another is to conduct responsible fiscal and
financial market policies. And a third is to implement structural reforms,
particularly on the supply side," he says.
Rajiv Biswas, Asia-Pacific chief economist with IHS Global Insight, said
2012 will be a "year of transition, uncertainty and change."
In a commentary published on the BBC's website Biswas said, "Despite the
political and economic uncertainties facing the global economy, Asia-Pacific
is forecast to be the fastest growing region of the world economy in 2012,
with growth rising to 5.3 percent from 4.5 percent in 2011."
"Continued growth in Chinese demand for exports from the rest of Asia will
help mitigate the impact of weaker export demand from the recession-hit
eurozone," he said.
Sanjay Mathur, head of non-Japan Asia research for RBS, says the global
economy enters 2012 with an unprecedented level of uncertainty.
To what extent will EU banks deleverage and reduce their exposure to the
region? Will US growth hold up and will the dollar once again win the currency
pageant? These are issues that will dominate markets, he notes in the bank's
outlook for 2012.
The debate over whether China has a soft or hard landing, according to Mathur,
will also be settled this year.
"With these issues lingering, multiple scenarios and outcomes are possible.
At one extreme is a repeat of 2008-09 where the region experiences a severe
reduction in cross-border lending and an attendant freeze-up in trade financing.
At the other, the speedy creation of a fiscal compact with greater funding
support from the European Central Bank," Mathur points out.
"These outcomes will clearly influence the underlying degree of risk aversion.
Fiscal austerity in the US could also pose a drag on the current healing
process. On China, we remain in the 'soft landing' camp. Nonetheless, at
least in the first quarter, the lagged effect of past tightening will continue
to show in the real economy data."
Credit Suisse in its latest Emerging Markets Quarterly says European debt
contagion remains the "shock of the hour, which carries the threat of becoming
the recessionary tipping point for the global economy".
The bank warns that the European debt contagion, if disorderly, could lead
to sharply tighter credit conditions globally, which in turn could cause
a severe contraction in global economic activity.
Amid the gloom INSEADós Story believes that many Asian countries have become
"interdependent with the world economy".
"That means governments have to face both ways, inwards to the domestic
markets, and outwards, to global markets and politics," he says, adding
that Asia's "inheritance for 2012" is the continued debt and banking crisis
of the major western markets.
Story believes that the old policy of exporting out, and protecting in,
which has served Asian countries well as long as western markets were buoyant,
is no longer viable.
Posted to asiawind.com
By CHUNG Yoon-Ngan (鄭永元)
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