New Zealand in recession: who’s next in Asia?

Advertisement

Last night, on Bloomberg TV I heard that New Zealand had become the first Asian economy to officially slip into recession. Today, I have seen the stats confirming this.

Related Posts
1 of 1,546

Jim O’Neill, Chief Economist at Goldman Sachs, says the chance of global recession is only 10%. I don’t see how he can believe this with economies weakening globally. New Zealand joins the UK, Ireland, Germany, France, and Japan at a minimum which have had negative GDP quarters. As I see it, this downturn is global and it is going to mean a global recession.

O’Neill is a smart cookie. So, if anyone has evidence to the contrary, I’d love to see it.

Below is the FT’s commentary on New Zealand’s recession and the inter-connectedness of Asian economies. Very interesting read.

New Zealand – the first country to see the light of day each morning – has, fittingly, become the first country in the Asia-Pacific region to stumble into recession. Second-quarter GDP data showed a decline in private consumption and exports, offset by only a small increase in government spending. Meanwhile, Japan, on technical definitions, is half way there. Does grim economic data from other Asian economies suggest there will be more casualties in the once robust region?

Strong trade links meant Asia was always going to suffer: if U.S. homeowners are giving back the keys to their homes, they are less likely to be buying Korean TVs or Chinese fridges. That hurts since Asia has become more, rather than less, export-intensive over the years. In 1980, exports represented less than one-quarter of output in Asia ex Japan, China and Taiwan, according to Royal Bank of Scotland; now they make up more than half. Chinese exports comprised one-fifth of GDP in 2001 and 37 per cent in 2007. This downturn has been exacerbated by spiralling food and energy prices, which ties the hands of central bankers.

Policymakers, banking on sustained lower inflation, are now seeking to pump up growth. China, for example, this month reversed years of monetary tightening to cut lending rates and reserve requirements for smaller banks. Taiwan, in milder fashion, followed suit. But not everyone can count on softer price rises – the weakening won, for example, could propel inflation higher in Korea. Besides, even reducing borrowing costs and making more funds available is only half the trick; consumers wary of losing their jobs will usually opt for saving over spending.

Fiscal packages doled out so far are unlikely to change the dynamics much, although China has the firepower to go further. Ultimately, though, the saving grace of Asia is that growth rates are starting to tail off from a high base. Japan apart, recession looks about as remote as – well, New Zealand.

Source
Asia’s first economy in recession – FT

Get real time updates directly on you device, subscribe now.

Do NOT follow this link or you will be banned from the site!