Wednesday, December 10, 2008

Asian trade in 'free fall' as exports to West dry up





The economic downturn in Asia has taken a sharp turn for the worse as Japan slides into deep recession and exports contract in China, Korea, and Taiwan.

A blizzard of grim data this week points to a full-blown trade slump across Asia, confirming fears that the region's strategy of export-led growth would backfire once the West buckled.

Flemming Nielsen, from Danske Bank, said exports from Korea and Taiwan both shrank by over 20pc last month. "The numbers are terrible. Intra-Asian trade is in free-fall. Taiwan's exports to mainland China in November were down a whopping 42pc."

The Baltic Dry Index measuring freight rates for bulk goods began to collapse in June, dropping 96pc over the five months in the most dramatic fall in shipping fees ever recorded. It was a leading indicator of what we are now seeing in Asian trade.

Fan Gang, a top adviser in Beijing, said China's exports would also show a decline when data is released this week. "Things are not good: industrial growth will be around 5pc and export growth will be negative," he said. Economic expansion of 5pc would be a major shock and entail recession in the Chinese context.

Japan's economy shrank 0.5pc in the third quarter and risks sliding back into deflation and perma-slump. Exports fell 7.7pc in October on crumbling demand for cars and machinery.

Over 1,000 Japanese companies went bust last month as the high yen squeezed margins. Sony is laying off 16,000 staff. Japan's industrial output is expected to fall by a post-War record of 8.6pc in the fourth quarter.

Tokyo is already planning "purchase vouchers" to kick-start spending in the world's second largest economy. A fresh stimulus package worth 20,000bn yen (£146bn) is being prepared for early next year.

"We need policies to keep the economy from falling apart," said economics minister Kaoru Yosano. "Japan will endure hardship next year."

Zahra Ward-Murphy, from Dresdner Kleinwort, said Japan has slimmed down its bloated debt structure since its Lost Decade, but is still half-reformed and over-reliant on exports. "It has not rebalanced the economy towards internal growth: now exports are tanking," she said.

Tokyo is once again running low on policy options. The Bank of Japan is wary of cutting rates below the current level of 0.3pc for fear of damaging the money markets, a key lubricant of the credit system. It may soon need to revert to emergency forms of monetary stimulus know as 'quantitative easing'.

Earlier rescue plans have already pushed Japan's national debt to 170pc of GDP, the world's highest. Private savings have collapsed from 14pc of GDP in the early 1990s to 2pc today. Japan goes into this downturn without a cushion.

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