Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in the METAVERSE Stocks Universe - 8th Dec 21
Stock Market Sentiment Speaks: I Expect 15-20% Returns For 2022 - 8th Dec 21
US Dollar Still Has the Green Light - 8th Dec 21
Stock Market Topping Process Roadmap - 8th Dec 21
The Lithium Breakthrough That Could Transform The Mining Industry - 8th Dec 21
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Asia Diverging Economic Outlooks Going Into 2012

Economics / Asian Economies Dec 15, 2011 - 08:11 AM GMT

By: James_Pressler

Economics

Best Financial Markets Analysis ArticleWith most of the industrialized world focusing on all things European, we thought it might be worthwhile to see just what was happening on the other side of the Ural Mountains. Asia has not become embroiled in the debt problems sweeping through the likes of Greece and Italy, and its exposure to the euro is contained. However, what happens in Europe will inevitably drift into Asia, so a look at its major economies might provide insight into what awaits the region in 2012. In particular, we are focusing on the two most populous countries in the world – China and India.




At the beginning of this year, China’s attention was on containing rapid credit expansion and a real estate market most people felt was overheating. India’s problem was inflation, aggravated by supply bottlenecks and an unpredictable monsoon season. Neither economy placed a high priority on events in the Euro-zone at the time. But 2011 has been a prime example of just how much things can change over the course of a year, and economically, this applies for China and India.

The People’s Bank of China (PBoC) began its monetary tightening phase in January 2010 but accelerated it in the beginning of this year, ramping up the reserve requirement ratio to a record 21.5% for large institutions and raising the more sensitive prime lending rate by 95 basis points – all in the first half of the year. This was supposedly a containment of inflation and credit growth and not a response to a growing asset bubble, and this was generally accepted once price increases moderated. However, as the Euro-zone economies slowed and China’s exports to that region tapered off, the PBoC changed its bias. The Bank declared that the fight against inflation was won, and it eased reserve ratios. We believe the justification was not that simple.


Contrary to popular belief, the European Union imports more Chinese goods than the US does (19.7% of the total versus 18.0%), and therefore China is that much more concerned about events in the EU. It has not been a coincidence that Beijing officials have offered widely-publicized financial support since 2009 to troubled EU economies and purchase significant amounts of debt. Now it appears that PBoC policy is becoming accommodative to offset an expected Euro-zone recession in 2012. As the situation in the EU progresses, and possibly worsens, policy measures from Beijing will reflect its increased concern.

India, however, is another story. The world’s largest democracy had been posting growth figures around 8% at the beginning of the year with inflation coming down from the 16% high at the beginning of 2010. However, price pressures were building as a poor agricultural season fed into supply shortages. Furthermore, a deceleration of money supply growth suggested the economy would be slowing down as the year went on. The Reserve Bank of India (RBI) was caught between fighting inflation or promoting economic growth, and while it opted to pursue price stability, its approach was insufficient. The economy slowed down, but prices rose back above 10% and the RBI had little enthusiasm for cutting rates. Going into 2012, India needs some outside help to promote growth. We question whether it will arrive.

Even in the best of times, exports only account for 25% of India’s GDP, versus the 50%+ seen in the more export-oriented regional economies. Europe is not a major trading partner, but rather the US and countries bordering the Indian Ocean. This steers India’s trade clear of the Euro-zone’s problems, and the economy may even benefit from increased regional trade, but as mentioned before, exports do not have the same impact on the economy as they would in China. Rather, India’s growth and price stability both depend on domestic balance, particularly with regard to food. This year’s monsoon season fell below expectations, so combining this with slow money supply growth and rising prices, we believe that the economy will struggle to post 4% growth through the first half of 2012. And if inflation does not come under control during that time, that below-potential growth rate could last the entire year.

Also important to the outlooks of both countries but far more difficult to forecast are the countries’ exchange rates – also heading in opposite directions. The Chinese yuan closed out last year at 6.62/US$ and has appreciated slowly throughout the year, though its strengthening is far from what its trade partners would prefer. The Indian rupee, however, has lost ground throughout the year, and dove precipitously since the beginning of November. For both countries, 2012 will need to be a year where their currencies move more in line with fundamentals. This suggests the yuan should appreciate more rapidly (which is highly unlikely if the export economy is adversely impacted by the Euro-zone’s woes), and the rupee should rebound (which will first require controlling inflation). Without these corrections, both economies will be vulnerable to problems in the global economy, and undoubtedly some problems will come from Europe.

James Pressler — Associate International Economist

http://www.northerntrust.com

James Pressler is an Associate International Economist at The Northern Trust Company, Chicago. He currently monitors emerging markets in sub-Saharan Africa, as well as several European and Asian countries.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in