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Asean Affairs  28 December 2010

Asean rides the economic teeter-totter

By  David Swartzentruber

AseanAffairs     28 December 2010

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A unique new form of economic gymnastics is evolving in Asean, the teeter-totter. The symbolism of this familiar playground toy, describes the interplay between Asean and the economies of the United States and China.

Looking back at the past year, the Asean countries and the rest of the world as well, were shaken by the meltdown of the U.S. and then European countries. However, the Asean countries weathered the storm, showed excellent gross domestic product increases and capital inflows came as Western economies, including Europe, appeared more unstable. So the Asean economies finish 2010 on the upside of the teeter-totter, looking forward to a positive 2011.

However, to the east, another danger lurks, the state of the Chinese economy, which could bring the Asean economy crashing down to earth.

With the Christmas weekend increase in China’s interest rate and the continued rise in its property and food prices, China may export inflation to the rest of us. Inflation will increase the cost of the many goods that China exports to the world. China is not alone in experiencing inflation, add Vietnam, Indonesia and India to the list.

Meanwhile, in the West deflation is occurring as countries and consumers are paying down their debt.

Asean countries are attempting to adjust their interest rates. For example, The Bank of Thailand will look for an appropriate time to increase its policy interest rate further in 2011, says Paiboon Kittisrikangwan, assistant governor for the Monetary Policy Group, after the governor hinted last week that business operators should be prepared for a rise.

Meanwhile, Thailand’s growth rate for 2010 was pegged upward to 7.8 percent for the year and the projected growth for next year is an estimate of 4.5 percent.

Runaway inflation could cut this growth estimate as Asean countries try to find balance between the world’s two largest economies.


Paul A. Ebeling, Jnr

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