SINGAPORE — Trade data from around Asia suggested that the region is being hit by a
widening slowdown in demand.
China's August trade data,
released Monday, complete the picture of a region feeling the lagged impact of the
slump from overseas. Chinese exports grew by 2.7% on-year, slightly above
expectations but down sharply from growth rates above 20% a year ago. Imports,
expected to rise 3.4%, instead declined 2.6%.
"There's a fairly clear
weakness of exports to Europe, and you don't win any prizes for figuring out
why that might be," Bank of Singapore Chief Economist Richard Jerram said.
"But there has been a slowdown of other trade flows as well, which might
be more worrying because it suggests a slowdown in demand more widely. There's
a fairly broadbased sluggishness now."
The China data follow distressing
trade figures of late from around Asia. Exports in August shrank in bellwether
economies like South Korea and Taiwan; in India exports for July, the most
recent data available, fell nearly 15%. Purchasing managers' indexes show
manufacturing contracting in most countries of the region, with a few eking out
only marginal growth.
In India and Indonesia--where
large domestic markets have helped shield local economies from the global
slowdown--widening trade gaps are feeding into current account deficits that
threaten to spiral out of control.
As the heavyweight of Asia,
however, "weaker economic data in China have major implications for the
region, which has come to rely more and more on demand from the mainland,"
HSBC economist Frederic Neumann wrote in a recent research report.
In that sense, the decline in
Chinese imports appears especially ominous—even if it can be partly explained
by lower commodity prices.
"The weakness in imports,
while not really a surprise, does underscore that a hard landing there is going
to retard the rebalancing story that everyone is assuming is going to occur in
China," said Tim Condon, ING's head of research for Asia.
"Unlike in Europe, where
you've had a real acute shock to the economy and now there's some scope for
pent-up demand to be released if sentiment gets a little more positive, the
story in China is one of grinding weak demand, and it has been going on for
some time," he said.
Some economists expect that the
slowdown is close to bottoming out. Wai Ho Leong, a senior regional economist
at Barclays, said new consumer electronics such as the rumored iPhone5 and
products running Microsoft Windows 8 have the potential to juice exports later
this year, especially from South Korea and Taiwan.
Asia's exports should stabilize
in September and then start to pick up in October, he said.
"I think we're close to a
turning point that this data don't reflect," Mr. Leong said.
Of course, any significant pickup
in demand depends on stability in the euro zone, which faces several imminent
flash points in its debt crisis. On Wednesday, a German court will decide
whether to block ratification of the European Stability Mechanism, the euro
zone's planned permanent bailout fund. In addition, the "troika" of
international bodies overseeing the Greek bailout will soon recommend whether
or not Athens has done enough to merit its next tranche of aid.
Another flare-up of the debt
crisis would send renewed shock waves through the global economy. Even absent
that, analysts say the Asian trade data show the need for more stimulus, in
China and elsewhere.
South Korea on Monday announced a
$5.23 billion stimulus package, with the Ministry of Strategy and Finance
saying it would marshal "all possible resources available for now" to
help the economy. Analysts also expect the Bank of Korea to cut interest rates
later this week, on top of July's 25 basis-point cut.
The People's Bank of China has
cut policy interest rates twice this year, and many observers expect it to
further reduce banks' reserve requirements to free up cash for lending.
"Clearly there's a need for
ongoing policy easing," said Aninda Mitra, ANZ's head of economics for
Southeast Asia. "If that does come about, it will perhaps start to
stabilize Chinese domestic demand and start to push up import demand by the
first quarter of next year, which would be very good for the rest of Asia."
While China isn't expected to
unleash a flood of credit as it did during the global financial crisis, the
National Development and Reform Commission recently approved dozens of
infrastructure projects that will pump an estimated $156 billion into the
economy. The government also may be more willing to open the fiscal taps later
this year once Beijing's once-in-a-decade leadership transition is complete.
"The data are really poor,
but the growing signs of a more determined policy response are
encouraging," Bank of Singapore's Mr. Jerram said.
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