RGE’s Wednesday Note – Japan’s Production Shortfall Drags on EM Asia Supply Chain

The amplified shock from Japan’s March 11 earthquake, then tsunami, then nuclear crisis has rippled through the supply chain of its emerging Asia (EM Asia) neighbors. Production shutdowns and weakened demand in Japan began to register in Asia’s trade channels in the weeks following the disaster. As the extent and duration of disruptions to production in Japan become more apparent, the severity of regional supply chain interruptions and the effects on EM Asia’s industrial production and export volumes and prices through 2011 can be better anticipated.

East Asia’s On/Off Switch

In 2009 and the first half of 2010, low interest rates and an uncertain global outlook led to strong, volatile capital inflows into some of Asia’s most promising economies. Policymakers in these places—which include, among others, Hong Kong, Taiwan, Singapore, South Korea, Indonesia and India—have searched for the best ways to control the on/off switch, to prevent volatility from undermining their economic growth. We examine this trend in a recent analysis, available to RGE clients, which surveys the measures implemented in each of the countries noted above.

Does Asia’s Economic Rebound Signal the Return to Stellar Growth?

Today we present a preview from our global economic outlook for Q4, which will be released to RGE clients later this month. The full version of the outlook includes a more in-depth version of the following analysis as well as RGE’s country-by-country projections for economic growth.

Asian economies rebounded in Q2 2009 as aggressive monetary and fiscal stimuli cushioned domestic demand and quick inventory adjustment eased the downturn in industrial production. Capital inflows have buoyed the asset markets and net exports have contributed to GDP growth as imports have contracted faster than exports.

Will India Get Back to 9% Growth?

In September 2009, India’s economic advisory committee lowered its GDP growth forecast for 2007-2011 from 9.0% to 7.8%. The government now expects growth to slow to 6.3% in 2009, from an average 9.0% growth in the recent years, due to the global recession. But it expects growth to return to 8% and 9% in 2010 and 2011, respectively. However, less benign global factors going forward and slow domestic reforms will make it challenging to achieve these growth targets.

The Indian economy grew 6.1% in Q2 2009 after slowing to 5.8% in both Q4 2008 and Q1 2009. Clearly, Q1 2009 was the bottom for economic activity. Starting in Q2, both domestic and global conditions somewhat improved and policy measures began to show impact. However, several domestic and external factors could constrain growth in the short to medium term, potentially undermining a V-shaped recovery scenario. Short-term risks to growth include dismal agriculture sector performance, fading impact of policy stimulus while private demand is still weak, and a slowdown in the global risk appetite. Risks over the next two to three years include a sluggish recovery in global credit conditions and domestic structural problems such as high fiscal deficit and public debt, inflationary pressures, slow reforms, and supply-side bottlenecks.

Eight Asian Predictions for the Year of the Ox

2008 has been a tumultuous year in Asia marked by the deterioration of exports and a collapse in many regional asset markets as the global recession worsened and leveraged investors withdrew. Hopes that Asia would “decouple” were, as we feared at the start of 2008, overly optimistic, as Asia’s domestic demand remains strongly correlated with exports and global liquidity. Growth and industrial production are now slowing sharply in many Asian economies and we fear the outlook will worsen in the first half of 2009.

A Perspective on Senator Obama and McCain’s Economic Policy Proposals

This will be remembered as a historic U.S. election when the U.S. and global economy are in the midst of the worst financial crisis and recession in decades. Millions of households on the verge on losing their homes or jobs look out for a President who can address their present woes like falling home values, rising mortgage and other debt, risk of foreclosure, declining returns from stock market, erosion of retirement savings and the risk of being laid-off. But Americans are also looking for a President who can deal with the challenges brought forward by this crisis such as improving regulation, oversight, dealing with mortgage debt. Moreover, long-term policy issues will need to be addressed like access to quality health care and its rising cost, trade and off-shoring related job losses and competition with global labor force, high gas prices and the country’s energy policy, ballooning defense spending and foreign policy stance, growing inequality and middle-class wage stagnation.

Are Asian Central Banks Still Behind the Inflation Curve?

The spike in food and commodity prices has pushed inflation in Asia to record levels since late 2007. Asian central banks, however, initially abstained from hiking interest rates due to fears of contagion from a U.S. slowdown. Instead, countries like India, Indonesia, Malaysia, Philippines and Vietnam opted to fight food and fuel inflation using non-monetary […]