Wednesday, September 7, 2011

Asia absolutely not immune to global slowdown

In the annual World Bank-Singapore Infrastructure Finance Summit, Singapore Deputy Prime Minister Tharman Shanmugaratnam put it very boldly:

'We're already at stall speed in the US and Europe, which means that we are more likely than not to see a recession. Asia will not be immune to a global slowdown,' he added, while speaking at a conference on infrastructure finance here.'

He used a more direct and bold statement than the World Bank president Robert Zoellick, who said that a new global recession could still be averted, but that the risks to the world economy are high.[1]

His warnings are timely since the same Pollyanna's are again trying to sell us this laughable story, "Asia living happily after the next slowdown" while world is probably heading to a recession. These people were also talking loud before the 2008 financial crisis and then we have seen how decoupled Asia is from the western economic problems. Yes most Asian nations have better fiscal position than west but this strength is not enough to cover the great weakness of Asia: With its production machine and supply chain network calibrated to produce goods and services for overspending west, Asia is directly open to any slowdown in the west. Asian nations, for years, are over investing on this overspending dependent production network and under investing to anything else which would actually decouple them from the economic problems of the west.

"Asia is not decoupled from the West. We have already seen Asia slowing down. Our house view is that China and India are not big enough to drive growth in Singapore or other smaller open economies."
Wu Kun Lung, Credit Suisse[2]

Although I still think US will kick the can one more year to save well connected financial figures by printing more money, Europe does not have so much time before pay back. And sooner or later, US citizens will also start to do what they should already be doing now: Paying back their debt ("Paying back the debt" is what global financial media is trying mystifying with a stupid name: deleveraging).

Although global financial media is trying to believe that printed paper money can save the world economy, it will not. If you could simply print money and solve your financial problems, many third world countries would be the most prosperous places on the planet now. Sooner or later, US and Europe start to live below their means and pay back their debt and China will have to stop spoiling its hard earn savings in wasteful infrastructure projects. And Asian export oriented economies, heavily dependent on overspending to grow will need to readjust their misallocated resources to sail ahead in the new world. And it is what recession is actually there to achieve: reallocating misallocated resources in the bubble times.

[1] - Asia in line of fire as the West takes a hit
[2] - Singapore growth forecast cut as headwinds blow, The Business Times