Asian economies face declining markets

 
AseanAffairs     14 July 2011

Singapore’s economy shrank for the first time in three quarters as manufacturing slumped, adding to evidence the slowdowns in Europe and the U.S. are stifling growth in Asia.

Although Asian economies remain buoyant, the shrinking of Singapore’s gross domestic product in the second quarter is a sign of a rocky second half for the global economy.

Europe’s debt crisis and the anemic U.S. job market have threatened export demand from Asia and wiped more than $2 trillion off stocks worldwide since the beginning of May. China’s economic expansion eased in the second quarter and India’s industrial production unexpectedly slowed in May, reducing the scope for monetary policy tightening as regional growth cools.

Inflation is another threat as both China and Thailand raised interest rates to increase borrowing rates to buffer inflationary pressures. On Wednesday the bank of Thailand raised its key interest rate to 3.25 and signaled that interest rates would keep rising due to high food and oil prices.

There is also concern that the economic policies of the winning Pheu Thai party in the recent election will drive up inflation.

Paiboon Kittisrikangwan, a central bank assistant governor, said "Spending that does not improve productivity should get lower priority considering its impact on inflation and potential to create other imbalances in the economy."

The most positive note in the Asian economy is the fast recovery of Japanese industry. This translates into the production of autos in Thailand, which should set a record of 2 million vehicles produced in the country this year.

The continuing problems in the Eurozone and the budget talks in the US are giving everyone headaches and uncertainty as the second half of the year gets off to a wobbly start.