August 15th, 2009
01:52 AM GMT
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HONG KONG, China - "Asia's astonishing rebound", says the front cover in today's edition of The Economist newspaper (yes, they call it a newspaper). It is astonishing, too, when you look at the headline economic numbers coming out of the region at the moment.

Asia’s steady rise: Can it continue without consumers in the U.S. and Europe increasing their spending?
Asia’s steady rise: Can it continue without consumers in the U.S. and Europe increasing their spending?

Take second-quarter economic growth for example: China up 7.9 percent, Hong Kong up 3.3 percent, South Korea up 2.3 percent, and even poor, lumbering out-of-shape Japan is expected to break its 18-month recession on Monday with Q2 growth of 1 percent. In Europe, recession is ending, too. But look at the numbers. Germany and France can manage growth of just 0.3 percent in the second quarter; Britain and Spain are still in recession.

Why? Why are these export-driven Asian economies leading the global recovery, when their key markets are still only now just stirring after the knockdown punch of the global crisis of late last year?

In a word: stimulus. It's not just China's $585 billion funneling into the economy; it's also Japan's $150 billion, and South Korea and Hong Kong's $11 billion apiece. Tax breaks, enormous investment projects, and government-funded property incentives all helped to keep the Asian consumer afloat, and generate economic growth. Restocking in the United States and Europe also helped, as companies broke from their deep-freeze and started building up inventories.

But. ... and there is a big one here: In its current form it's not sustainable. Asian policy-makers have done a remarkable job lifting economic growth out of the gutter, but until the real engines of global growth get off the ropes, the Asian rebound isn’t going to go anywhere.

What's needed is strong, sustained demand from consumers in the U.S., Europe AND Asia. It's starting in Asia, but this is still an export-focused region.

Glenn Maguire, chief economist at Soc-Gen, says it will be decades before Asian economies have rebalanced so that domestic demand can keep economies growth healthy by itself. And here's a clear statistic to back that up: Maguire says the U.S. consumer market in 2007 was about $10 trillion. China, by contrast, was $1 trillion. Even taking into account the rest of Asia (except Japan) but including India it comes to about $2 trillion. Some other estimates put the total at $4 trillion, but you can see Asia is still a long way behind.

It's a given that the U.S. consumer has changed his/her buying habits. Job security and rock-bottom home values and big, big personal debts will do that. It will be a long time, perhaps many years if ever, before the U.S. consumer, or for the matter the European consumer, is prepared to go on the sort of buying binge we've seen build up during the past two decades.

That means lower economic growth, for all of us, for a long time to come.



soundoff (3 Responses)
  1. tanboontee

    Are you sure Asia’s rebound unsustainable?

    For starters, a good number of Asian countries have not been hit that badly by the recession as compared to the West. They are resilient to the nasty impact of the global financial upheaval, partly because of the saving habit of their nationals, and partly due to the strong and huge foreign reserves accumulated over the past decades.

    Cynics continue to argue (perhaps out of intense envy) that China’s recovery could be a fake (maybe out of boastfulness). I suppose the same argument can apply to the West too.

    August 15, 2009 at 4:47 am |
  2. francisca cardoso

    How does it feel revisiting this whole theme now ? Seems to me like a good time , one year later , and maybe people are sarting to accept a different prespective . How about puting the 2 moments in time side by side , of both East and West , and look into the deepness of what has started ?
    Cynics just argue, never deliver...and you can´t say they didn´t have their share of reasonable time since last year ! The "pause mode" as the kind recent label from Mr Greenspan seems rather suitable,doesn´t it ? And doesn´t even seem cynical at all to me. Instead it may be the full stop of a cycle.
    It seems some are starting to look at the whole theme as relevant and strucural and not just like a game played with money , jobs and an economy relying on consume for...80% .
    What about the East ,now ? Soft landing, gentle manoeuvre to consume ... to credit .. maybe still a bit slow, but steady and dealing rather well with fear. And preparing for the long run and for adjustments .. just as meaningful is the scale, that different tool that offers you the kcaleidoscopic view and allows that long time to shorten and organise and grow for change most quickly as well.
    What a beautiful sky will shine over HK in the 2 -3 years to come ! And then,the other 2 when all will move on its one wheels, how will we look at time then?
    It may be the right time for another stop and review over the 2007 and 2010 moments , who knows ? Wonderful times from then on ? At least fast growing times and that will help who gets there ... sounds like the old story of mankind ? Maybe going back to the jungle was not so smart after all, and that, too ,could come as a nice starting point.

    August 2, 2010 at 11:29 pm |
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