What Threat Does Europe Pose to Asian Growth?

Not much according to the Asian Development Bank (ADB). Despite the ongoing--how should I describe them--gyrations in the Eurozone, the Asia-Pacific is expected to do well. Actually, the ADB has already downgraded its prediction for Asian growth in light of the various Western foibles--from 7.5% to 7.2% [yawn]. As I said, there is not much of a threat predicted. The worst case scenario is of simultaneous US/EU combustion. Here is the press blurb:

Economic growth in emerging East Asia will continue to moderate into 2012 as growing sovereign debt problems in Europe and an anaemic US economy raise the spectre of a deep global economic downturn, says the Asian Development Bank’s latest Asia Economic Monitor [you can download the whole report here].

In the event that both the eurozone and the US economies contract sharply, the impact on emerging East Asia would be serious yet manageable, the report says. “The turmoil emanating from Europe poses a growing danger to trade and finance within emerging East Asia; so the region’s policymakers must be prepared to act promptly, decisively, and collectively to counter what could be an extended global economic slowdown,” said Iwan J. Azis, Head of ADB’s Office of Regional Economic Integration, which produced the report.

The pertinent part of the report is this one regarding the tricky business of forecasting:

ADB cut its forecast for the region's growth in 2012 to 7.2% from the 7.5% forecast in the September Asian Development Outlook 2011 Update. Growth is still forecast at 7.5% for this year.

In a special section—-Can East Asia Weather Another Global Economic Crisis?—-the report describes the events that could lead to a recession in the eurozone and a new economic downturn in the US. It examines how a new global economic crisis would affect the region under differing scenarios. East Asia comprises emerging East Asia plus Japan.

In the worst case scenario—with the eurozone and US contracting as much as they did in 2009—-emerging East Asia would grow by 5.4% next year. That would be 1.8 percentage points below the current forecast but not as severe as the impact of the 2008/09 global crisis. This is due in part to diversification of the region’s export markets and increased domestic demand as a source of growth.

This decoupling is down to Asian exporters developing markets within Asia as opposed to relying on Western ones that are no longer in such good shape. Not putting all of a nation or region's bets on a few export categories (i.e., diversification) has helped, too.

For a counterpoint to the optimistic scenario for Asia, see Roubini. To paraphrase Rummy, though, Asians should care progressively less about the "old West" as it has in all likelihood seen its better days and insulate themselves accordingly from blowback.