Europe, US demand can determine pick-up pace
This column normally features optimism about an early Asian recovery but the pessimists have some good arguments to present too and one of them is worth considering.
After the last big Asian slowdown in 1985 there was a rapid recovery in economic growth across the region. It was fuelled not so much by domestic activity as by a sizeable pick-up in export demand from the United States and Europe.
At its peak in late 1987, export growth from Asia outside of Japan had rebounded to more than 30 per cent year over year in US dollar terms. The share of these exports going to the US and Europe also rose to 47 per cent of the total from 42 per cent in 1984.
Things are different now. The figures for June this year, the latest available from all countries in the region, show exports dropping by 1.5 per cent year over year and figures from countries which have published later data indicate that the trend has probably continued down since June.
Meanwhile the share of the total going to the US and Europe declined to 33 per cent by mid-1997 and, although this figure has since risen to 36 per cent, the increase only indicates that exports to other Asian destinations have fallen precipitously because of the financial troubles. Exports to the US and Europe are not in fact growing. Their share is up only because others are dropping so fast.
There is also not much immediate hope of an improvement. All the signs point to a slowdown in economic growth in the US and Europe with a consequent slowdown in their demand for goods made in Asia.
Thus, say the pessimists, there isn't much hope that the engine of the 1986-88 recovery in Asia will power recovery this time round and what other engine is there then to do the trick? Something is needed to get recovery started and there is not much to be seen. It's a fair point.
However, there are a few counter-arguments to be made. The first is that the current slowdown in Asian export growth may have as much to do with Asia's ability to export as with any slowdown in export markets.
High interest rates and tight credit pinch producers easily as much as slow orders.
The same thing happened in 1985. Exports fell by 7 per cent at one point that year, far more than any slowdown in the US or Europe could have explained. It was caused mostly by local considerations.
Secondly, it is still too early to expect the export recovery that normally accompanies economic recovery to show up. June this year was still the height of the crisis.
It will take time in Asia for falling interest rates to do their work. Give them a chance before writing off the export engine.
Thirdly, the export destination figures hide a growing trend towards shipments of components around different Asian countries before the final manufactured product is sent somewhere else.
The decline since 1986 in demand from the US and Europe may still be largely illusion.
But there is no getting around it. Recovery will be much slower if the US and Europe don't want Asian goods.