BusinessTimes
HONG KONG: Previous troubles in the US economy have caused Asia to skid badly - but analysts think the region has matured enough to get through any bleak days ahead for the US.
In the past, woes in the world's biggest economy have hit Asian exports, robbing funds for investment and leading to a fallback across the region, said Andy Xie, an economist and former Morgan Stanley analyst in Shanghai.
"A lack of money leads big projects to be postponed, giving rise to a vicious cycle. But this is the first time in history that emerging economies don't have such constraints," Xie said.
Now, he said, Asia has built up huge foreign exchange reserves worth trillions of dollars, providing a buffer to fund those big infrastructure projects and break the cycle.
The reserves, amounting to US$1.4 trillion (US$1 = RM3.32) in China alone, have accumulated because of trade surpluses and a stampede of foreign investment.
"China will continue to grow regardless," Xie said.
The US could be facing a sharp slowdown due to the credit crunch and sliding property market resulting from a mortgage default crisis, which along with record oil costs could weigh on its usually spendthrift shoppers.
Those concerns have rattled world stock markets, including in Asia, but many experts feel that the region's fortunes are to some extent now standing on their own.
"You can definitely make the case that a large part of the Asian economies have decoupled from the US," said Pierre Gave, the head of research at economics consultancy GaveKal.
"The big difference is the amount of infrastructure spending. I would definitely say Asia is less export-dependent on the US," the Hong Kong-based analyst said.
He estimated there was US$800 billion of infrastructure spending in Asia this year, providing the region with a bigger growth impetus than the US consumer.
"Asian economies have the money to do it, including a lot of foreign exchange reserves," he said.
"If you see a Chinese economic slowdown, they can just push the infrastructure spending button," Gave said.
"They have so much cash."
China, and to a lesser extent India, are also helping to drive trade within Asia, analysts say.
But Asia still faces risks. In Japan, for example, there are growing fears of recession after the country's economy contracted between April and June.
"The Japanese economic situation is already fragile. We see a rising risk of recession. An external shock from the US is one risk we face," Kenichi Kawasaki, a Lehman Brothers economist in Tokyo, said.
Another risk stems from the US mortgage default crisis, which involves the subprime sector, comprising home loans to riskier US borrowers. The crisis has led to huge losses at major banks and hit stock market confidence worldwide.
There were already fears of a share price bubble in Asia ahead of the credit crisis, but it has served to intensify worries about a major correction with the potential to damage the region's economy.
There is still a chance the crisis could sink one of the world's major financial firms, damaging sentiment worldwide, Gave warned.
"If something big happens due to the subprime problem, like a major bank failure, then that could cause everything to go down," he said. - AFP
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