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Global slowdown: Asia Pacific at greater risk

Source: PTI
October 29, 2008 17:17 IST
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Asia Pacific region is at a greater risk now as concerns have now shifted from financial failure to worries about global economic slowdown and with it the region will be hardest hit as exports are a major contributor to the regional output, say a latest Moody report.

"The Asia-Pacific region has escaped relatively unscathed from the financial effects of the credit crisis. But the region will not remain immune from its economic effects," Moody's, a subsidiary of Moody's Corporation said
in its latest report.

Impact of the global economic slowdown would be so much that a major slowdown in Asian exports is on the cards later this year and in early 2009, the report added.

"The greatest risk to Asia is not a financial crisis but an economic slowdown, considering that exports are such a major contributor to regional output," Moody's senior economist Daniel Melser said.

The recent tumble in global equity markets illustrates that the global credit crisis is entering a new phase, Moody's said, adding that concerns about financial failure are starting to ease, but worries about prospects for growth are mushrooming.

Recent weeks have seen carnage in regional share markets as well as massive falls in exchange rates. China has sustained by far the largest share market fall, as its equity bubble burst. Share prices in India, Indonesia and other
countries have also significantly declined.

"Unfortunately, a weakening global economy represents a far greater risk to Asia than recent financial developments," the report said. Trade is a major contributor to the gross domestic product of the Asia Pacific than any other region in the world. This means any changes in overseas demand will have a pronounced impact on growth.

"As demand from global consumers withers, as is readily apparent at present Chinese exports will slump, as will demand for imported components and commodities from around the region," the report added.

Growth is set to slow across the board, China would post a growth of about 9 per cent over the next few years compared with 11.9 per cent in 2007. And the rest of the Asia-Pacific region will follow suit.

Meanwhile, other countries in the region that have come to rely on China to propel their economies will also see their growth rates decline. 

Overall, Asia Pacific region has gotten off relatively lightly. No government bailouts have been required unlike in the US and Europe as no banks have failed or come close to failing as a result of asset write-downs. And although liquidity problems have certainly arisen, they are manageable.

Asia, excluding West Asia, holds around $795 billion of agency debt, the largest holdings of mortgage backed securities and consisting almost entirely of securities issued by Fannie Mae and Freddie Mac and hence intimately
linked to the US housing market.

These holdings did not create any major problems for their Asian owners as they are of higher quality and are not derived from subprime or Alt-A mortgages.

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