The Global Economy in Turbulent Times

CHAPTER 117 Asia Feels the Heat¹

The eurozone crisis has been hitting Asia. It has since escalated sharply. Asian economies are hit hard in multiple ways, including slackening external demand, sluggish trade, weakening financial and supply chain linkages, volatile markets, and deteriorating risk appetite. Developments in Greece and talk of a Spain bailout have been negative. Concerns over the future of the euro and the rising possibility of Grexit (Greece exit from the euro) deepened on new evidence of policy inertia and a fresh spate of dire economic news that points to whatever remaining support for business activity in the eurozone splintering away. The strong headwinds from Europe coupled with fresh signs of a slowdown in the United States, China, and India have since effectively erased whatever gains global stock markets had gathered since end-2011. The huge market declines have raised anxiety for investors, who are now girding for a worldwide slowdown. It is naïve to expect Grexit to resolve Europe’s problems. As a result, Asia’s emerging markets are under rising pressure to stimulate their economies just as investors, banks, and enterprises are moving in the opposite direction, scaling back on lending and investing on new projects, fearing a turn for the worse in Europe. There are worries that excessive stimulus will be counterproductive in the face of serious fiscal and political constraints.

Downswing in Sync

Latest reports are disturbing, indicating a new threat ...