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NEWS UPDATES 3 September 2010

Asia decoupling itself from Western economies

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HSBC says Asia is decoupling itself from the Western economies.

With domestic demand surging in Asia, the bank says the region will be less reliant on trade with the West.

Asia's rising prominence is also supported by growing deflation and risk aversion in the West with western economies unlikely to return to their pre-crisis state any time soon.

The EU has been plagued by fiscal crises in Spain and Greece, while economic recovery in the US remains patchy.

To contain high public debts, some western economies have introduced austerity measures and kept interest rates low to stimulate borrowing.

Interest rate in the US is at 0.25 percent, and it is 1 percent in Europe.

But this has led to growing deflation and higher risk aversion, which means the West could continue to stagnate.

Stephen King, Group Chief Economist, HSBC, said, "As people become increasingly risk averse, more are worried about how asset markets are performing, they go for safety.

"Once you enter this business of deleveraging and deflation, life becomes more challenging and more likely to be associated with economic stagnation, deflation, disinflation, all these nasty things that central bankers struggle to deal with."

According to HSBC, Asia does not have share these concerns.

HSBC says the bulk of the region's trade come from emerging economies and that is set to grow.

"These changes will be a new impetus for growth which once again reflect the diminishing importance of the States and Europe, and the growing importance of emerging markets all over the world," King said.

With low interest rates, HSBC says the increase in the borrowing of US dollars or Euros for investment into Asia will unlock more progress for the region.

The International Monetary Fund projects that the Asian economy will grow 8 per- cent this year, compared to 4.5 percent for the global economy.

Despite concerns of falling trade with the US, China continues to pull in growth figures of 9 per cent annually.

This was confirmed by heads

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