| KUALA LUMPUR, June 12
KUALA LUMPUR, June 12 A deepening slump in
exports is sending tremors through Asia, threatening to
undermine some booming emerging economies that have surged ahead
in recent years on a heady combination of easy credit, buoyant
consumer demand and strong domestic investment.
Export growth throughout Asia has sagged in recent months,
hit by slackening demand from the United States, Europe and
China and by slumping commodity prices. Leading indicators are
also pointing to weaker factory activity in the coming months.
The slowdown is being felt most keenly by Southeast Asian
countries whose strong domestic economies are sucking in imports
more rapidly and which now face sharp deteriorations in their
trade balances that could spook investors.
Heavy stock market and currency falls in the region this
week have underlined the risks as investors grow nervous that
the U.S. Federal Reserve may taper its quantitative easing (QE)
policy that has fuelled a surge of credit in Southeast Asia.
"For countries like Indonesia, and to a certain extent
Malaysia, you've had this perfect storm of weak external demand,
weak commodity prices, and strong domestic demand," said Robert
Prior-Wandesforde, director of Asian Economic Research at Credit
Suisse in Singapore.
"One doesn't want to see it go too far. We don't want these
countries running into huge, unsustainable deficits because
inevitably we'll run into Asian financial crisis type stories."
Malaysia's trade surplus fell to its lowest level in April
since the 1997 crisis with a surprise 3.3 percent year-on-year
fall in exports announced last week. The country could soon run
its first trade deficit in 16 years.
Exports from the Philippines, which already runs a trade
deficit and last month reported the fastest annual economic
growth in Asia of 7.8 percent, plunged 12.8 percent in April
from a year earlier. Indonesia reported a trade deficit in April
after exports contracted for a 13th straight month. Thai exports
have slowed, contributing to a record trade deficit in January.
Underlining broader Asian trade weakness, China posted on
Saturday its lowest export growth in almost a year in May.
China's economy has been a major source of export demand for
other Asian nations, but that is expected to fade as the world's
second-largest economy begins shifting to a slower growth path.
While the U.S. economy is showing signs of regaining
traction, much of Europe remains mired in recession and China is
showing worrisome signs of stumbling.
"It's going to be the new reality for Asia. Exports will not
be as exciting as they used to be," said Euben Paracuelles,
Southeast Asia economist at Nomura in Singapore.
Shrinking factory orders also point to a loss of momentum
for economies whose fortunes are closely linked to China, such
as Taiwan and Hong Kong. Some officials, however, played down
the slowing exports, saying it did not signal a structural
weakness or a persistent trend.
"What I see is a large drawdown in existing inventories on
the part of our trading partners," said Diwa Guinigundo, the
deputy governor of the Philippine central bank.
"...It's a matter of time before we see a more definitive
widespread recovery of global growth and in turn, exports."
TOO MUCH OF A GOOD THING?
Robust domestic demand has been a source of strength for
Southeast Asia's emerging economies in recent years as growing
spending by the middle class and a rise in infrastructure
investment has reduced their traditional export dependence.
They are in a far healthier state than in 1997, having built
up hefty foreign exchange reserves, reduced external debt and
gained credit upgrades through improved public finances.
But worsening current account balances could still be a
problem at a time when foreign funds are reducing exposure to
risk and seeking safer havens. One concern in Southeast Asia is
a surge in household debt in recent years. Philippine and
Indonesian banks have been expanding consumer lending at an
annual pace of around 20 percent, for example.
"There are certainly dark clouds hanging over a number of
countries," said Jayant Menon, a senior economist at the Asian
Development Bank. "This is not talked about much but if you get
a huge deterioration in capital flows, high levels of household
debt could really bite."
Nomura's Paracuelles said Southeast Asian governments and
central banks would need to respond with policy changes in
coming months, tightening fiscal policy where possible and
raising interest rates to protect currencies and dampen frothy
The first such response came late on Tuesday when
Indonesia's central bank raised overnight interest rates to
combat heavy selling pressure on the Indonesian rupiah.
Indonesia, Southeast Asia's largest economy, looks the most
vulnerable to a worsening external position, economists say, due
to its dependence on commodities and slow progress on reforms.
Credit Suisse said on Wednesday it was downgrading its
investment growth forecast for Indonesia this year to 5 percent
from 8.6 percent, citing a sharp slowdown in capital growth.
While the slowdown should reduce overheating pressures, it
said Indonesia could still struggle to fund a current account
shortfall due to weak commodity prices and lingering obstacles
to foreign investment in key sectors such as mining.
"A lot of Indonesian companies use profits from commodities
to invest in other parts of the economy," said
Prior-Wandesforde. "The weakness in commodities could spill over
into consumer spending."
(Additional reporting by Karen Lema in MANILA and Rieka
Rahadiana in JAKARTA; Editing by Jacqueline Wong)