Challenges for the Asian economy

Many economic analysts dissecting the present trends in the global economy have predicted a doom global economic situation for the year 2008. Some analysts have predicted a slow down in the Asian economic growth next year as the US economic locomotive slows. However, continued breakneck growth in China should ensure the region escapes a severe downturn, analysts predict.

Japan looks particularly vulnerable to any cooling of the US economy as brisk exports have played a pivotal role in a recovery in Asia's largest economy after a slump stretching back over a decade, they said. But overall the region is expected to remain relatively resilient to the ongoing fallout from a US housing slump and related credit squeeze.

"Growth will likely moderate somewhat from what has been a very strong performance in 2007 across most of Asia," said David Cohen, Director of Asian Economic Forecasting at Action Economics in Singapore. The extent of the slowdown will depend on whether the US economy makes a hard or a soft landing, analysts said.

"Asia ex-Japan is well placed to weather a moderate global economic slowdown, but not a sharp downturn," Lehman Brothers economist Rob Subbaraman wrote in a research note.

As well as an expected US slowdown, high oil prices and a possible dollar slump are seen as the main potential threats to the region. But analysts said Asia is in better shape to cope with external shocks than a decade ago when the regional financial crisis struck because countries now have current account surpluses and huge foreign exchange reserves.

Despite its resilience so far to signs of a US slowdown, analysts say Asia's fortunes are still closely tied to the United States. "If there is a hard landing, we doubt that the region could decouple; China could even face deflation," said Subbaraman.

Asian economies still rely heavily on the United States to buy the goods churned out by their myriad factories.

"The exposure of Asian economies to the US and other major industrialised economies has increased not decreased over the last couple of years," said Jan Friederich, a senior economist at the Economist Intelligence Unit in Hong Kong.

But he said the fast-growing Chinese and Indian economies might benefit from a moderation in growth amid concerns about overheating. "China is probably growing a bit fast at the moment.

India is probably also still somewhat on the verge of overheating," he said. Slowing demand for their exports would help to rein in growth to more sustainable levels, said Friederich.

According to the Asian Development Bank, Chinese economic growth will ease to 10.5 per cent in 2008 from 11.4 per cent in 2007 "if government measures to cool the economy begin to take hold. "China's economy continues to power ahead despite government efforts to rein in growth, with a recent emphasis on directly ordering banks to curb lending.

Growth in the Southeast Asia economies is expected to cool to 6.1 per cent in 2008 from 6.3 per cent in 2007, the ADB predicts. Japan looks set to be one of the weakest performers again in Asia next year, particularly if exports to the US slow down, analysts said.

Courtesy weconomy.com