Last week saw the World Economic Forum (WEF) park its bandwagon in Bangkok, the East Asia leg of the forum’s global tour.
The WEF – a highly-publicized gathering of heads of government, CEOs, NGO bosses and academics – meets in several locations around the world each year to discuss the state of the world's economy.
But with worries that a politically unstable Greece might have to leave the euro zone – a time bomb that could undermine or even scupper the currency – and with Spain’s 50 percent youth joblessness and shaky banking system threatening tip to the EU’s 5th biggest economy over the edge, a good chunk of the discussions turned west to Europe to see what the implications are for East and Southeast Asia, seen as the world's prime growth regions.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
Asian economies have grown on the back of trade with the West – one fifth of China’s exports go to Europe. For smaller trade oriented economies such as Hong Kong and Singapore the overall percentage of Europe-bound exports is around half that of China, with the percentage of GDP much higher given that China has a large and growing domestic market to turn to.
As a result, “being connected brings not just prosperity but it also brings along risk,” warned Pailin Chuchottaworn, president and chief executive officer of PTT Public Company of Thailand, addressing the forum.
Europe’s woes and a sluggish U.S. recovery mean that Asia’s export dependent economies could struggle, as much multinational investment in Asia is part of a supply chain that sees finished goods exported to Europe and the U.S., meaning that many of Asia’s growing economies are dependent, to varying degrees, on struggling Western countries.
With this in mind, Naoyuki Shinohara, deputy managing director of the International Monetary Fund (IMF), told the WEF in Bangkok that “final demand is still outside Asia, so countries in the region should be not be complacent and prepare for potential shocks.”
Economic data coming from a variety of Asian countries over the weekend bore out the IMF deputy head’s warning. Overall, despite Asia's growth, a “lack of resilience is the most important threat to the global economy,” warned Jane Harman, director of the Woodrow Wilson International Center for Scholars, speaking at the WEF.
New figures show that India's growth slowed to 5.3 percent, a nine-year low and a big drop from the 8 percent average of recent years. The fall off has raised fears that the country was approaching a watershed moment akin to the early 1990’s. However, despite being a democracy, unlike one-party China, India’s economy hasn’t shaken off the statist, bureaucratic cobwebs of the pre-1991 era to the same degree as its Communist rival to the north.
But in China, too, there are signs of a slowdown. The official purchasing managers’ index (PMI) for manufacturing outlined a worse than anticipated downturn in May, with analysts citing Europe’s woes as one reason alongside more risk averse manufacturing and banking sectors. Next Saturday, China will release monthly figures on industrial production, inflation and retail sales that are expected to show some stalling in the world’s second-biggest economy.
Elsewhere, South Korea's exports slowed for the third straight month, while a flight to the yen pushed up the Japanese currency against the euro, making life tough for Japanese exporters.
“If there’s huge stress in Europe, there will also be a major impact on trade financing and project financing in east Asia,” said Naoyuki Shinohara, pointing out that the worries about the near future in Europe are affecting European banks’ willingness to lend in Asia, in turn hitting available credit for expansion-oriented companies invested in the region.
In response to bank wariness, the Asian Development Bank (ADB) has received a 50 percent increase in requests for trade-finance support and loans compared with last year, as businesses seek alternative credit lines as Europe's woes knock-on to Asia.
However, this is unlikely to mean that multinationals are likely to look away from Asia as a choice investment destination anytime soon, as even if growth slows in Asia, it’s still likely to vastly exceed the sputtering West.
Malvinder Mohan Singh, executive chairman of Fortis Healthcare, reminded the forum that “we moved our global HQ to Singapore to be where the growth is.”
Similarly, Stuart Lee, CEO of General Electric’s ASEAN division, told the WEF in Bangkok that although his company would always seek the optimum value for investments based on factors such as input costs, government policy and workforce skills, that “we gotta be investing where the growth is.”
Simon Roughneen is a Southeast Asia-based journalist.