SINGAPORE -- Just as growth is stabilizing in the long-troubled United States and Europe, concerns are now emerging about Asia's economic health.
The unfolding disaster in Japan following last Friday's earthquake, along with the turmoil in the Arab world, have raised questions about economic growth in these regions, said ratings agency Standard & Poor's chief global economist David Wyss.
“The U.S. is looking healthier, with stronger growth and consumers ... are borrowing more money,” he said. “We have seen the worst of it. The U.S. is doing okay. It is a sluggish recovery, but clearly a recovery.” Car and home sales are up and unemployment, while still high at 8.9 percent, is at its lowest level in almost two years.
Europe, on average, will also see moderate growth this year, he said, with a mixture of stronger growth from Germany and France, and other countries such as the debt-ridden Portugal, Greece and Ireland poised for extremely soft recoveries.
“That leaves most questions coming from Asia and the Middle East,” he said. The Arab world has seen unprecedented political unrest as people sought to bring down long-standing regimes. As the region is a crucial supplier of oil, a price shock of US$150 or even US$200 a barrel is a serious risk, Wyss said.
“For the Middle East, my best guess is the situation will stabilize, which means the oil price drops back down to the high US$80s in the next few months. But a lot more can still go wrong there.”
He said consumers can withstand a moderate rise in oil prices, but anything above US$150 would be uncharted territory and could cause panic, which in turn could lead to a double dip recession.
“It is not a forecast, but a risk that needs to be taken very seriously,” he said.
As for Japan, S&P credit analyst Takahiro Ogawa said he did not expect serious implications for Japan and the world economy as a result of the earthquake and tsunami, unless there is a catastrophe at the nuclear plants, which contribute about 4 percent of total electricity generated in Japan.
“If the capacity is gone, it is difficult to replace in a short period of time, so there could be a shortage of supply of electricity in Japan,” he said. This could lead to a cutback in production in Japan and fewer imports and exports within the region.
“There is a potential risk that because of the shortage of supply of electricity, general economic activities in Japan will be affected. And there will be indirect implications on economies in Asia.”
He added it was too early to talk about any implications for the country's credit rating as it would depend on the eventual size of the economic damage and the cost to the government of rebuilding.
However, government spending could be “much higher” than after the Kobe earthquake in 1995.
S&P said in its twice-yearly Asian markets outlook report — not factoring in the earthquake — the biggest challenge facing Asian economies this year will be taming inflation.
There are likely to be more interest rate hikes and further capital controls, the report said. It added that inflation still was not under control in most of Asia's economies, although it is not expected to “spiral out of control” or lead to a hard landing in the region. Twelve of the 14 major regional economies will see slower growth rates than last year.
Source: www.chinapost.com.tw
The unfolding disaster in Japan following last Friday's earthquake, along with the turmoil in the Arab world, have raised questions about economic growth in these regions, said ratings agency Standard & Poor's chief global economist David Wyss.
“The U.S. is looking healthier, with stronger growth and consumers ... are borrowing more money,” he said. “We have seen the worst of it. The U.S. is doing okay. It is a sluggish recovery, but clearly a recovery.” Car and home sales are up and unemployment, while still high at 8.9 percent, is at its lowest level in almost two years.
Europe, on average, will also see moderate growth this year, he said, with a mixture of stronger growth from Germany and France, and other countries such as the debt-ridden Portugal, Greece and Ireland poised for extremely soft recoveries.
“That leaves most questions coming from Asia and the Middle East,” he said. The Arab world has seen unprecedented political unrest as people sought to bring down long-standing regimes. As the region is a crucial supplier of oil, a price shock of US$150 or even US$200 a barrel is a serious risk, Wyss said.
“For the Middle East, my best guess is the situation will stabilize, which means the oil price drops back down to the high US$80s in the next few months. But a lot more can still go wrong there.”
He said consumers can withstand a moderate rise in oil prices, but anything above US$150 would be uncharted territory and could cause panic, which in turn could lead to a double dip recession.
“It is not a forecast, but a risk that needs to be taken very seriously,” he said.
As for Japan, S&P credit analyst Takahiro Ogawa said he did not expect serious implications for Japan and the world economy as a result of the earthquake and tsunami, unless there is a catastrophe at the nuclear plants, which contribute about 4 percent of total electricity generated in Japan.
“If the capacity is gone, it is difficult to replace in a short period of time, so there could be a shortage of supply of electricity in Japan,” he said. This could lead to a cutback in production in Japan and fewer imports and exports within the region.
“There is a potential risk that because of the shortage of supply of electricity, general economic activities in Japan will be affected. And there will be indirect implications on economies in Asia.”
He added it was too early to talk about any implications for the country's credit rating as it would depend on the eventual size of the economic damage and the cost to the government of rebuilding.
However, government spending could be “much higher” than after the Kobe earthquake in 1995.
S&P said in its twice-yearly Asian markets outlook report — not factoring in the earthquake — the biggest challenge facing Asian economies this year will be taming inflation.
There are likely to be more interest rate hikes and further capital controls, the report said. It added that inflation still was not under control in most of Asia's economies, although it is not expected to “spiral out of control” or lead to a hard landing in the region. Twelve of the 14 major regional economies will see slower growth rates than last year.
Source: www.chinapost.com.tw
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