Inter-regional strengths save Asean from global chaos

 In the report “Asean Outlook: Weathering the Storm” by Katrina Ell and Fred Gibson, the authors noted that Asean’s trade links with Asia have strengthened over the past 10 years, consistent with China’s rising importance, but the region depends highly on Western demand. China is now an important final destination for consumer goods, and a higher proportion of hard commodity exports are ending up with Chinese manufacturers and construction companies. This has coincided with a decline in the US share of Asean’s total exports to 14 per cent, from 20 per cent a decade ago.
 While the direct impact of a slowdown in Western economies may not be as devastating regionally as it once was, Asean still relies on the US and Europe as markets for consumer goods. The current downswing in the global tech cycle, which is weighing on growth throughout the region, was mainly driven by weakness in the developed world, rather than weakness in Asia.

Even with a solid pickup in consumer spending and fixed investment, the authors opined that these economies remain reliant on exports and, with global demand still soft, growth across Southeast Asia is expected to remain slightly below potential in 2012.
 
As such, it expects policy rates across the Asean countries to remain on hold through 2012 as global financial market tensions begin to ease.

“However, central banks will maintain a loosening bias to safeguard growth against further global ructions, which remain the key risk facing the region.”