Looking East,
Turning away from Europe for a today, I have taken a long look at the global growth scenario.
The Asian Development Bank (ADB) today lowered its growth forecast for 2012, Chinese economic activity, as measured by PMI, fell from 56.3 to 53.7 in September, Australia released its largest trade deficit since March 2008.
Growth in Asia ex. Japan will fall to 6.1% in 2012 the slowest since 2009.
While the developed world struggles to grow at all and the debt crisis in Europe stifles economic activity, Asia is running out of places to sell its good.
A slowdown in China, precipitated by the fall in demand from its export markets together with sluggish domestic demands has knock on effects for the suppliers of its raw materials. This means primarily Australia as the most developed producer of many of the basic supplies China needs.
Today’s report from the ADB saw the Australian Dollar fall to its lowest level in a month. The markets reasons for buying the AUD are rapidly diminishing as interest rates have been cut, its major export market is slowing and import prices are gradually increasing.
Japan and South Korea have also witnessed slowdowns in the economies. In Japan the strength of the currency is a major burden that is taking a long time to be fully absorbed into its exporter’s cash flows.
The traditional markets for Korean exports have slowed considerably and although they remain highly sophisticated technically, the lack of demand stemming for the economic slowdown is hampering any kind of meaningful growth.
Asia ex Japan will grow at 6-7% in the next few years which is considerably lower than the 8-9% seen prior to the financial crisis of 2008/9.
Stimulating domestic demand is difficult outside of China and even Chinese growth is beginning to show signs of a slowdown.
China has a fair amount it can do to improve productivity and efficiency but any such gains are short term measures.
Until the global economy starts to pick up and perform at close to average growth rates Asia will suffer.
However it is open to question if the developed economies will be able to perform at pre-crisis levels again giving the shifting dynamic of their economic activity in a world that looks very different to how it did pre-2008.
Globalization, a major driver of growth in the early/mid part of the decade has slowed considerably and a certain amount of self-preservation and even protectionism, particularly in the two largest economies; Europe and America, could see Asia suffer for a long time to come.