More bad news from Asia
Even the portions of Asia that relied less on exports aren’t looking quite as good any more. The FT reports that India seems to be decelerating. Malaysia didn’t grow in the fourth quarter. And “Thailand’s exports and industrial production fell at a record pace in January.”
Frederic Neumann, Asia chief economist at HSBC, told the FT
The collapse in Asian exports over the fourth quarter was “nothing short of breath-taking”, said “Economic models and experience suggest that financial turmoil tends to transmit far more gradually into the real economy than has occurred this time around. In fact, the severity and rapidity of the fall in output exceeds anything we have ever seen before.”
That seems exactly right to me.
Throw in some indirect evidence that China slowed quite sharply at the end of last year, and there isn’t yet much evidence that Asia is going to help pull the rest of the world out of its slump. Right now Asia’s sharp deceleration implies it is adding to the forces that are pulling the global economy down, not propping it up. The IMF’s global forecasts — which presume that growth in India and China keep output in the emerging world from falling as sharply as it is expected to fall in the mature economies — consequently still seem on the optimistic side.
UPDATE: BNP Paribas’ chief economist also finds the IMF’s forecast too optimistic, and now anticipates negative global growth for 2009. BNP Paribas also now forecasts the downturn in growth in the emerging world will be far larger than the downturn in the 97-98 emerging market crisis.
Why should this be a surprise?
If we considered a globalised economy, then why should not expect to see the domestic patterns of the Great Depression repeated globally?
In the UK, the heavy industrial heartland of the North was devastated while the South held up well through automotive and light industrial / electrical goods manufacturing (and the sempiternal government economy in Westminster and the global FIRE economy of the City).
For the North, read industrial Eurasia; for the South, read the post-industrial consumption and tertiary / quaternary economic centres of the West + Tokyo.
i guess there is quite bit of growth/GDP genereated from the export dependant(& its depenadant…trickle effect) industries in emerging markets.
latest GDP number from india is around 5%. With inflation around 8-10% ? dont know how good or real the growth is.
Here’s another view:
Feb. 27 (Bloomberg) — China said its 8 percent growth target for this year is within reach even as the worst financial crisis since the Great Depression hammers economies worldwide.
Asia is getting hammered based upon what I saw in my most recent trip.
China has the most leeway, with its available cash, but their infrastructure is already overbuilt given their internal demand. How many more half-empty highways/airports do they need ?
purple: China has the most leeway, with its available cash, but their infrastructure is already overbuilt given their internal demand. How many more half-empty highways/airports do they need ?
China doesn’t need any more highways, airports, or luxury apartments. However, it does have a very strong need for decent railroads and cheap apartments, and a lot of the thinking behind infrastructure spending is “what can we usefully spend things on.”
Eventually this will stop working, and you’ve built everything you can build and infrastructure won’t work. Japan was at that point in 1990. China will be at at point someday, but it’s not there now.
Also the massive infrastructure build in 1997 was one of the things that led to the export boom after 2000. China’s big advantage in manufacturing was not cheap labor, there are lots of places in the world with cheap labor. It was cheap labor with excellent infrastructure.
CYT: The US Treasury borrows to fund its own expenses. The Treasury borrowing isn’t influenced in any way by the “current account deficit”.
Ummmmm….. Brad didn’t say US government. He said United States.
To Indian Investor:
Just a bit of advice here.
Brad is likely not part of the “evil conspiracy that is out to enslave the world,” and accusing him of that just means that you annoy one person that you don’t need to annoy.
However, even if Brad was part of the “evil conspiracy that is out to enslave the world” you are going about it all wrong.
The reason I don’t think that Brad is part of the “evil anti-China conspiracy” is that I’ve met people who are part of the “evil anti-China conspiracy.” If you go to conferences, you end up running into people that *are* neo-conservatives, and *are* trying to keep US hegemony over the rest of the world and destroy China as a power by any means possible. Look for a name tag that says Project for a New American Century. You’ll find a few at the Heritage Foundation. I’ve also met more than a few lobbyists for from the Taiwan Independence movement.
So what do you do when you come face to face with the “enemy”?
Smile and have a nice pleasant conversation over hor-d’ourves.
Listen, take notes. Try to figure out their strengths and weaknesses. Most of all, be polite and pleasant. If you start screaming, they’ll shut up, and you don’t want them to shut up. Have them, talk, and talk and talk and talk and while you are listening, take down mental notes about anything they say that can and will be used against them.
I mentioned VAT taxes in an earlier post, and I’d be careful about how to read them. VAT taxes include lots of taxes from intermediate producers such as concrete and steel. The other thing is that I seem to recall reading that VAT tax receipts were falling sharply before the crisis hit which suggests that it has more to do with China hitting the brakes earlier last year.
I think the reason that things have fallen as quickly as they did was that traditional economic theory assumes that exports would fall because of a drop in demand, whereas what I think is going on is a massive drop in credit. If you just reduce demand, it takes a while for the lights to go out, but if you kill credit, then things stop cold instantly.
[...] Brad Setser: Follow the Money
Indian investor — Again, I would remind you of your previous commitment to refrain from posting here. That at least is how i interpreted your comment a few days back that “this is my last comment.” Feel free to link to this blog from your own blog. My patience is close to its end.
redweb — the FT highlighted the sharp deceleration in y/y growth in india, which suggests q/q growth has slowed even more.
twofish : “If you just reduce demand, it takes a while for the lights to go out, but if you kill credit, then things stop cold instantly.”
. . . and credit depends upon faith in the ability to repay. one day people are begging madoff to take their money and invest it for them. the next day its all over. then there is no chance of reviving the relationship.
. . . .so if people believe that treasuries are a safe haven, they are. the day something happens to jolt perceptions – it could be over. not a bear market – a freeze up and a vertical plunge that forces a closing of the market – or even a suspicion that this could be possible.
. . . . not my suggestion, but, for one example, a tokyo earthquake requiring the japanese to find reconstruction money. that would be a black swan.
globalisation tends towards a global economy ‘all in one piece.’ instead of a flotilla of small craft caught in a storm, you have one big ocean liner. harder to sink – but when it goes down it goes down.
deglobalisation is the only safe way forward. you cannot win a major confrontation in an interlinked global economy. you are only bombing your own suppliers.
Brad
I just thought of another possible blog topic(in addition to looking at the Fed balance sheet someday, which is my previous request).
Since Canada and Mexico are still up there as our largest trading partners, how about looking at US trade figures in N. America and see how these are fairing.
Volker did a speech a while back and said the US and Euro banking system should model itself after the Canadian system. Meaning Canada kept all the firewalls in place between commercial banking and activities pursued by IBs that we abandoned over the last 20 years.
Volker was part of the “Group of Thirty” that was convened to analyze and suggest remedies to the current state of international banking. So I believe he knows what he speaks of.
Some here may be interested in opening up a Canadian bank account, if we would feel more confident that trade linkages don’t pull Canada down too, in spite of being old fashioned proper banking types.
[...] More bad news from Asia (Setser) [...]
Is there a way out of this mess. Let the finger pointing begin. All the Rep. are say :look at the Dems. they are screwing up!” But 8 years of asleep at the wheel can not be fixed overnight.
Here’s a survey of world banks. Canada came out on top. The US has slipped behind Nambia. But we still beat out Britain which slipped behind El Salvador. Something there to cheer about, I guess.
=========================================
Canada rated world’s soundest bank system: survey
09/10/08
By Rob Taylor
CANBERRA (Reuters) – Canada has the world’s soundest banking system, closely followed by Sweden, Luxembourg and Australia, a survey by the World Economic Forum has found as financial crisis and bank failures shake world markets.
But Britain, which once ranked in the top five, has slipped to 44th place behind El Salvador and Peru, after a 50 billion pound ($86.5 billion) pledge this week by the government to bolster bank balance sheets.
The United States, where some of Wall Street’s biggest financial names have collapsed in recent weeks, rated only 40, just behind Germany at 39, and smaller states such as Barbados, Estonia and even Namibia, in southern Africa.
The United States was on Thursday considering buying a slice of debt-laden banks to inject trust back into lending between financial institutions now too wary of one another to lend.
The World Economic Forum’s Global Competitiveness Report based its findings on opinions of executives, and handed banks a score between 1.0 (insolvent and possibly requiring a government bailout) and 7.0 (healthy, with sound balance sheets).
Canadian banks received 6.8, just ahead of Sweden (6.7), Luxembourg (6.7), Australia (6.7) and Denmark (6.7).
UK banks collectively scored 6.0, narrowly behind the United States, Germany and Botswana, all with 6.1. France, in 19th place, scored 6.5 for soundness, while Switzerland’s banking system scored the same in 16th place, as did Singapore (13th).
The ranking index was released as central banks in Europe, the United States, China, Canada, Sweden and Switzerland slashed interest rates in a bid to end to panic selling on markets and restore trust in the shaken banking system.
The Netherlands (6.7), Belgium (6.6), New Zealand (6.6), Malta (6.6) rounded out the WEF’s banking top 10 with Ireland, whose government unilaterally pledged last week to guarantee personal and corporate deposits at its six major banks.
Also scoring well were Chile (6.5, 18th) and Spain, South Africa, Norway, Hong Kong and Finland all ending up in the top 20.
At the bottom of the list was Algeria in 134th place, with its banks scoring 3.9 to be just below Libya (4.0), Lesotho (4.1), the Kyrgyz Republic (4.1) and both Argentina and East Timor (4.2).
RANKINGS
1. Canada
2. Sweden
3. Luxembourg
4. Australia
5. Denmark
SOURCE: World Economic Forum Global Competitiveness Report 2008-2009.
(For the full World Economic Forum report click on:
http://www.weforum.org/GCR0809_Browser)
Brad
Also it would be interesting to see how Australia is doing import-export wise, since they are a large commodity exporter to Asia, and should be included as part of the picture.
I am an Indian – love reading what you guys write – learning a lot.
Really apologize for ’silly indian investors’ creating nuisance.
One should learn to keep quiet and understand when smart people are talking, rather then putting own crap.
[...] think Asia will come to the rescue of the world economy? Hmmm, read this post by Brad Setser and wake up to some cruel [...]
Info in article useful. One question: who or what figured Asia to pull rest of world out of slump?
Dunnage: Leaders throughout the developing world have talked about breaking their reliance on traditional trading partners and selling more to the BRICs (three of which are in Asia). Here in Venezuela Hugo Chavez has been quite blunt about this, including a couple weeks ago securing a new $4 billion investment credit for Venezuela in return for oil shipments to Asia.
Speaking of Venezuela, the new balance of payments report from there shows what may be a worst-case scenario for export-oriented countries. A current account surplus of $17.9 bilion in q3 fell to a deficit of $4.5 billion in q4.
dunnage
Asia’s biggest attraction and its biggest failing is its perceived market, the population is huge, its potential is there but potential needs time and effort to mature, the capacity to consume at more developed levels is questionable at present.
The biggest worry is the rapid pace at which everything has collapsed, the very speed seems to have caught most people off guard. Those who didn’t learn the loan/debt finamncing lessons of 97/98 are now facing a potential crisis in repayment.
One big difference though, the SWFs. Perhaps they have learnt they aren’t immune either, the brains they employed have been well paid for their brilliance over the years but they seem as hesitant as the rest of Wall Street to take punitive action well a mess is created. Sure much of the losses are attributable to major economic and financial developments but surely just as they are rewarded for their bringing in profits, those who decide on investments which result in losses should also be made to face consequences for the losses. Consequences and rewards are 2 edges of the same sword.
Why is everyone surprised?
Investment was such a huge part of growth across emerging asia. There was an investment bubble there just as there were real estate bubbles in the OECD.
The investments relied on belief in unending growth. Reality has intervened.
Also we’re learning how full of holes the alleged results of Indian and Chinese firms were, even in good times.
Asia, like the US and Europe, will be a mess for years.
The good news is that Obama’s carbon and business taxes will stimulate more overseas expansion, relocation and outsourcing by US firms. This should help Asia medium-term.
The bad news is that Obama’s reaction to this could be to slap tariffs on Chinese goods in order to protect the environment (note that Europe has already been talking about tariffs on countries without carbon taxes and pollution controls).
D Gross”The bad news is that Obama’s reaction to this could be to slap tariffs on Chinese goods in order to protect the environment (note that Europe has already been talking about tariffs on countries without carbon taxes and pollution controls).”
Ya. I’ve been worried that’s where things are headed.
I hope World Leaders can make up their mind which way we are headed. Since carbon taxes won’t make carbon go away (we need solutions, not another big missallocation of capital program), the only effect they can have is reduced world output. That will make carbon go down somewhat, where carbon is “elastic” in the economic sense. But if they combine that with deficits, credit bubbles, etc… all in the name of stimulating the global economy, then I don’t know what we end up with.
Twofish,
I’ve always quite respected your comments here, which is why it is so surprising to see this: “China has the most leeway, with its available cash, but their infrastructure is already overbuilt given their internal demand. How many more half-empty highways/airports do they need ?”
I didn’t see empty highways and airports in the past five years or so, and only a very mild easing of congestion in the past 12 months. Besides, there are many, many other kinds of infrastructure badly in need of being built. Schools, hospitals, sewers, water systems . . . the list continues.
I agree with the conclusion, about cheap labor + excellent infrastructure, but the labor is no longer all that cheap and spending on infrastructure never stops.
- – - – -
RE VAT: “VAT taxes include lots of taxes from intermediate producers such as concrete and steel.”
Um, not true. What is paid for concrete and steel is the price plus VAT. But, what is paid for the product made of concrete and steel is price plus VAT minus VAT already paid.
Same for every good or service along the chain: the seller collects the gross VAT and that partially off-sets the VAT he paid to his own suppliers.
DOR: I didn’t see empty highways and airports in the past five years or so, and only a very mild easing of congestion in the past 12 months.
Wires got crossed. I was quoting someone in order to refute them. Personally I think that China has a lot of concrete that can be poured.
[...] is Asia doing so badly? Tyler Cowen asks, linking to Brad Setser’s More Bad news from Asia, why is Asia doing so [...]
[...] the portions of Asia that relied less on exports aren’t looking quite as good any more. The collapse in Asian exports over the fourth quarter was “nothing short of breath-taking”, said “Economic models and experience suggest that [...]