Asian exports hit by US and Euro woes
HSBC and ratings agency Standard & Poor’s have identified Asia’s over-reliance on exports to Europe and the US as the reason for the slowdown in the region’s economies.
Asia is getting caught up in the European mess with trade finally starting to buckle," said Frederic Neumann, regional economist at HSBC. "The latest data suggest there is much more pain to come on the export side."
And a report from Standard & Poor's, titled Southeast Asia Banks: Staying The Course Amid Challenging External Environment, stated that further slowdowns in exports to Europe might lead to lower economic growth, weaker asset quality, and higher credit costs.
"But despite these challenges, we believe most Southeast Asian banks and economies are capable of withstanding external pressure under our base-case scenario," said Standard & Poor's credit analyst Ivan Tan.
China and India had slower manufacturing growth for July and Japan recorded its worst performance since last year’s earthquake and tsunami. South Korea also saw its sharpest fall in exports this year.
Only Indonesia defied the regional trend as manufacturing activity continued to expand. According to an HSBC survey, Indonesian PMI rose 1.2 points to 51.4 in July, a nine-month high.
Chinese manufacturing activity fell slightly in July despite expectations for a rise after Beijing cut interest rates and urged banks to increase lending to shore up the economy, reported the Financial Times.
"On a more positive note," said the Standard & Poor report, "we believe the retreat of European banks can also present opportunities for Southeast Asian banks to expand their market share and presence.
"In particular, the larger banks in Singapore and Malaysia are already growing regionally, and are positioned well to meet the financing requirements in these markets. However, we believe these banks are likely to grow sensibly and manage their risks prudently.
Wen Jiabao, the Chinese premier, has warned against underestimating the risks posed by the global economy, saying “downward pressure is still relatively big”.
The poor data out of Asia highlight the region’s dependence on demand from the US and Europe, whose economies have struggled since 2008.
While the eurozone sovereign debt crisis has hit growth in Europe for more than a year, the effects have only recently started to feed through into reduced demand for Asian exports.
"The Asian data are showing that the inevitable correction is here and we can expect it to worsen," said Ben Simpfendorfer of Silk Road Associates, a Hong Kong-based consultancy. "But I don’t think we’re looking at a mid-2008 collapse."
The domestic economies of many Asian nations are also slowing. Taiwan’s contracted 0.2% year-on-year in the second quarter, according to figures.
Ashley Davies, an economist at Commerzbank, said the latest Chinese numbers were "consistent with an ongoing slowdown but no hard landing".
India, Asia’s third-biggest economy after China and Japan, saw manufacturing growth slow in July as power cuts disrupted production. HSBC's India manufacturing PMI eased to 52.9 in July, down from 55 in June.