Asia Strains Under Euro Crisis

Posted on June 1, 2012


Declining European Demand for Region’s Exports Compounds Sputtering Growth

Updated May 31, 2012, 9:34 p.m. ET,


The economies of Asia, both the emerging markets and the more developed countries, are being hit by a double whammy of slowing domestic growth and the impact of the European debt crisis on Asian exports and finance.



Signs of distress are proliferating.

In India, the government reported Thursday growth in the first three months of the year at the slowest pace in the past nine years—up 5.3% from the year-earlier quarter, well below the 8% pace of recent years. “A gasping elephant,” said Leif Lybecker Eskesen, HSBC’s chief India economist, in a note to investors.

Early Friday, South Korea said its exports unexpectedly contracted for a third consecutive month in May compared with a year earlier. South Korea is the first country in Asia to release trade data for the month and is often a harbinger of regional trends.

In Australia, falling commodity prices—the result of weakening global demand—are prompting big mining companies to talk, for the first time since 2008, of slowing down the pace of investment there. On Friday, data showed activity in Australia’s manufacturing sector fell to its lowest level in nine months in May, increasing concerns that the nonmining part of the economy is in trouble and that further interest cuts could be necessary.

In China, the Ministry of Commerce is blaming “worse-than-expected” economic performance in Europe for disappointing export data. In Taiwan, manufacturers of electronic devices report order cuts from brand-names like Dell, Lenovo and Nokia.

Across Asia, stock markets have effectively erased the gains of rallies earlier this year, making it harder for firms to launch initial public offerings.

Motor-sport franchise Formula One Group is delaying its $2.5 billion initial public offering in Singapore as choppy markets continue to hit equity fundraising efforts of companies globally, people familiar with the situation said early Friday. On Thursday, Graff Diamonds withdrew its heavily marketed $1 billion IPO in Hong Kong.

At the same time, a pullback by European banks, husbanding their resources at home, is crimping credit throughout Asia—including finance vital for trade. “We’re in a situation now where a lack of credit is hitting at economic growth and job creation. It could get worse,” said Steven Beck, the Asian Development Bank’s head of trade finance. The agency has seen demand for its trade-finance guarantees and loans surge 50% year-to-date as banks turn away exporters and importers.

The turmoil in Europe, a major customer of Chinese exports, is contributing to a broader slowdown in China that could leave growth there at around 8% this year, compared with its growth in recent years of around 10%. Data in recent weeks on industrial production, bank lending and manufacturing suggest the Chinese slowdown has continued into the current quarter.

The rate of China’s growth has broad effects on the rest of Asia, and a major focus throughout the region is how powerful and effective an expected government stimulus effort will be. China is a major destination from commodity producers in Indonesia, India, Malaysia and elsewhere. And its growing middle class is increasingly a major market for Japanese cars and luxury goods. In addition, big companies throughout Asia have been investing in China to get a piece of increased Chinese spending, which is now growing at a slower pace than anticipated.

China’s slowdown has already hit the region’s natural resource producers. Australia’s trade in resources mostly with China fell in March for the third time this year and ended flat in April. In the first three months of the year, Australian coal exports were down 19% and iron-ore and mineral exports fell 11%, the Australian Bureau of Statistics said.

As a result, economies all over the globe are more than ever counting on a steadily improving U.S. economy—which J.P. Morgan Chase has labeled “the little engine that must.”

“As Europe slides into recession and Chinese momentum continues to slide,” the firm said in its most recent weekly Global Data Watch, “global growth depends more on sustaining U.S. demand.” The latest data suggest the U.S. is growing—but sluggishly—with markets, politicians and businesses looking to Friday’s job-market report for new clues.



A chart shows how the weakening euro continues its plunge against the Japanese yen Thursday in the window of a Tokyo stock brokerage.

Asia’s economies are, of course, a diverse lot. Exports to the euro zone accounted for 15.5% of China’s total exports in 2011, but only 4.2% of its gross domestic product because its domestic market is so large, according to Credit Suisse-First Boston. And in Indonesia, euro-zone exports represent only 8.9% of all exports and 2.1% of its GDP. In contrast, Europe represented 9.0% of Hong Kong’s exports and 7.7% of Singapore’s—and 15.9% and 12.2% of their GDPs.

Fears of the impact of the European crisis flooded through Asian financial markets on Thursday, ending a dismal month for investors. Hong Kong’s Hang Seng fell 11.7% in May, its worst month since September 2011 and its worst May since 1998. The index fell 0.3% Thursday, hitting an intraday low of 18,378.14, at which point it had wiped out its 2012 gains.

In Japan, the Nikkei fell 1.1%, pulling it down 10.3% for May, its worst month in two years. For Asia’s most-developed economy, the Europe-sparked fear takes a different form from that affecting its developing neighbors, centering not on capital drying up, but on a surge of money flowing into the country, seen as a haven. Investors pouring cash into Japanese government debt pushed the yield of the 10-year bond at one point Thursday to 0.810%, the lowest since July 2003.

The flight to the yen has pushed up the value of the currency against the euro and even the dollar, which makes the country’s exports less competitive globally. A survey of increasingly pessimistic manufacturers released Thursday showed companies expect industrial output to tumble 3.2% in May.

Sony Corp. illustrates the pinch Japan is now feeling. The electronics giant generated about 20% of its revenue in Europe in its last fiscal year and takes a hit with each drop in the euro. “There are few parts suppliers in the euro zone, so it’s more difficult to offset the euro’s impact,” said Sony spokeswoman Mami Imada.

Chinese companies, meanwhile, are hoping that stronger domestic demand will compensate for weaker demand from Europe. Alan Lai, owner of Shiny Garment, a maker of baby clothes in Dongguan in southern China, says he hasn’t felt any impact from Europe yet, but he is bracing for it and trying to expand sales in China. “I do worry about the crisis,” he said. “I want to have some insurance and safety.”


Deeper troubles in Europe could increase pressure for China to implement more aggressive stimulus. But Beijing so far appears reluctant to do so as it continues to grapple with the bank debt and worries about overcapacity that resulted from the massive spending binge it used to blunt the impact of the 2008 financial crisis.

Global investors lately have been fleeing Indonesia, forcing authorities to step in to shore up the faltering rupiah, which is down 5% against the dollar so far this year. The stock market fell 2.2% Thursday to a five-month low. China’s slowdown will “impact directly on the economy in this region,” President Susilo Bambang Yudhoyono told The Wall Street Journal earlier this week.

Yet economists expect Southeast Asia’s largest economy to grow in excess of 6% this year, in large part because its more than 240 million people continue to spend. Strong domestic demand helped Indonesia weather the 2008-09 global financial crisis without a major contraction while more export-dependent economies were hit hard.

“If there was a significant financial meltdown in Europe, it would affect the global economy…[It] would have significant impact in Asia,” James Bullard, president of the U.S. Federal Reserve Bank of St. Louis said in Tokyo on Thursday.

“We’re all very worried about the European situation [and] the Indian growth numbers aren’t looking too good either,” Klaus Munk, the Singapore-based head of Asian operations for Denmark-based Ultrabulk Shipping A/S said Thursday.

Bulk shippers like Ultrabulk are being hit on three sides, with tight trade finance, slowing trade and a rising fleet of ships, which is pushing down freight rates.

—Yuka Hayashi and Juro Osawa contributed to this article.

Corrections & Amplifications

Susilo Bambang Yudhoyono is Indonesia’s president. An earlier version of this article misspelled his name.


  • europe buckles under the pressure of a leaderless america beginning to fail…
    • That was one weird comment dude.

      The fact is that Asia is entirely dependent on exports of goods and services to survive and the two major markets that it sells into are both tapped out.
      India has a lot of its problems to blaim on itself. Poor governance and poor infrastructure combined with a seeming inability to educate a large enough portion of its population.
      China IS a bubble and just like the banks here, they have played way too many games with their numbers in both the private and public space (if there is much of a difference). What is worse….they believe their own BS so they are not addressing the problems that they need to.
      No….Asia has created its own problems and they are about to become very painful indeed.

  • Some history:
    During the Great Depression, countries that relied heavily on exports suffered the most.
    The League of Nations labeled Chile as the country hardest hit by the Great Depression. At the time, nearly all of its government revenue came from exports of ores.
    By the time the depression hit the world, Germany was already being crushed by war debts which had caused its currency to devalue to nothing. No wonder they are afraid of debt.
    The US was the China of that time in terms of exports, and when Europe raised tariffs on US manufactured goods in response to the US raising tariffs on the imports of Agricultural goods (thanks to the Farm Lobby and its puppets in congress), factories closed and the US entered a long depression.
    Now Europe’s double financial bomb, i.e. bank crisis plus sovereign debt crisis threatens the world’s economies again. Spain’s bank problems cannot be kicked down the road for a couple of more years.
    Austerity programs in Europe plus huge European Bank insolvency problems plus Europe’s perennial inability to lead itself and act on problems is weakening the economies of Europe and now Asia. A few countries in Europe are already in or near a depression in terms of unemployment.
    But the US economy may stand apart from Europe’s mess as we did during the Asian financial crisis. We are now the great importer rather than the great exporter of the ’20s. True, we are also the world’s largest exporter, but exports are now only 13% of our GDP, according to the World Bank. A loss of ten percent of exports is a loss of 1.3% of GDP which will hurt badly, but will not crush. We will see

    • Great perspective !
      I’m more worried about my own country (Canada) but fortunately, the public debt load is lower than most OECD countries, the current deficit is more cyclical than structural, and our largest exporter being the US, it should pick up some of the slack created by the lower orders from Eurasia.5 hours ago

  • American consumer confidence plummets…
  • Good news on the Asian front !!
    Let ’em keep their call centers and half-a_ _ ed copy cat manufactured products !

  • Government stimulus is so fundamentally foolish (unsound, idiotic, insane, whatever word applies) that it is amazing these leaders are even considering it. When markets need to correct, or assets need to revalue, or productivity needs to increase, and the signs and red flags are glaring, the premise that leaders can take (rob, steal, requisition, whatever) public money and, against all odds, reverse the market indicators, is the most self-delusional arrogance ever.
    • It’s unbelievable this fundamental truth has to be repeated again and again. It must be too simple and citizens are just to jittery. Nobody wants to buckle down and wait it out.
      41 minutes ago
  • China was smart of not getting too close with EU. If China was rescuing EU last year as suggested by others, China would be the one that needs rescue today.