Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

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

6 Critical Money Making Rules