Analysing The Financial Crisis
One of the best pieces of reporting we have read about the continuing economic woes, specifically what’s ailing the Asian tigers, The Economist quotes a recent report from HSBC by Frederic Neumann and Robert Prior-Wandesforde; Asia is suffering two recessions: a domestic one as well as an external one. Domestic demand had been expected to cushion the blow of weaker exports, but instead it was hit by two forces. First, the surge in food and energy prices in the first half of 2008 squeezed companies’ profits and consumers’ purchasing power. Food and energy account for a larger portion of household budgets in Asia than in most other regions. Second, in several countries, including China, South Korea and Taiwan, tighter monetary policy intended to curb inflation choked domestic spending further. With hindsight, it appears that China’s credit restrictions to cool its property sector worked rather too well. Tiding over the downturn, the Economist thinks will have to come from within. However, Asian governments have more than this year’s growth rate to worry about. Beyond the immediate crisis, where will growth come from? America’s consumer boom and widening trade deficit, which powered much of Asia’s growth over the past decade, has come to an end. Asia’s export-led growth therefore seems to have reached its limits. It needs a new engine of growth: in future it must rely more on domestic demand, especially consumption. Click here to go to the story. Sure is some interesting insight.