Asia to take a beating if recession hits anew

PUBLISHED : Wednesday, 12 October, 2011, 12:00am
UPDATED : Wednesday, 12 October, 2011, 12:00am


Global trade volumes could drop by up to 15 per cent by early next year if the world enters a recession similar to the downturn caused by the 2008 financial crisis, Standard Chartered Bank's chief economist for Asia warned yesterday.

Nicholas Kwan said Asian economies would also be hit if trade collapsed as a result of deeper financial problems in the euro zone, triggered by a Greek default.

'In the next six months, the decline in trade could be 10-15 per cent globally. In Asia it would be slightly less and China less still,' he told the Journal of Commerce's Trans-Pacific Maritime conference in Shenzhen.

By comparison, global trade slumped 25 per cent between 2008 and 2009. In China, trade volumes dropped by 12 per cent and in the rest of Asia by 20 per cent over the same period, Kwan said.

He said the mainland and Asia were now more exposed to Europe's financial problems than they were during the 2008 crisis, indicating there could be a deeper impact on trade over the longer term. This is because Germany and France, whose financial institutions are heavily exposed if Greece defaults, are big trade partners of Asian economies.

Kwan said the recent Greek bailout agreement reached by Germany and France offered some optimism. But uncertainty over the euro zone's financial woes would not be lifted until at least December when the International Monetary Fund would be due to decide whether to release Euro8 billion in aid to Greece.

Kwan also doubted 'China could save the world again' as it did three years ago because the mainland's debt levels had already soared over stimulus packages.

Its current debt levels are now similar to several European economies at around 70-80 per cent, compared to about 20 per cent of gross domestic product three years ago.

But Kwan said it would not take too much extra spending to push China to reach a position where its debt-to-GDP ratio was close 100 per cent, similar to the US level.

He said one of the main reasons trade was badly hit in 2008 was the virtual freeze on bank lending to support trade finance, but financial institutions were now better prepared and had built liquidity reserves.

But shipping executives indicated that Kwan was being overly bearish because he did not take into account growth in emerging economies such as those in Latin America and Africa.

Rodolphe Saade, a senior executive with French shipping group CMA CGM, said: 'Emerging markets are growing quite strongly. We need to be careful when we look at 2012.'

He said container trade volumes were growing year on year - a view echoed by Rod Riseborough, CEO of Container Trade Statistics, who said trade volumes between Asia and Latin America were growing by around 16 per cent a year, while trade growth from Asia to Europe was set to climb 5 per cent this year.

But Brian Conrad, from the US industry group Westbound Transpacific Stabilisation Agreement, said there were mixed signals in future trade due to political uncertainty. He said manufacturers and suppliers were unable to give forecasts up to December, when they could previously give five-month estimates.