Friday, July 24, 2009

China Lifts Asia

Today's GDP report from South Korea confirmed what earlier reports from China and Singapore indicated: that the East Asian economies are recovering.

Unlike the U.S. "recovery" which really hasn't been a recovery since output has continued to contract (only at a slower pace), this is a real recovery with expanding output. After the initial shock from the financial turmoil last year and the big drop in exports to America and Europe, Asians are now relying on growing domestic demand in China. In the case of South Korea, we are for example seeing a record trade surplus, mainly due to increasing exports to China.

This recovery will likely continue, though it faces two threats, one near-term and another somewhat further into the future. The near-term threat is the risk of a "third wave" of financial turmoil this fall (similar to the financial turmoil in the fall of 2007 and 2008) as monetary conditions are becoming tighter in America. The second threat is the excess money supply growth in China, which could create more malinvestments there and slow future growth.


Blogger Metin said...

Stefan, so do you think China's growth is sustainable or is it a credit-infused bubble situation?

8:24 PM  
Blogger Ke said...

China's growth is not infused with credit, but rather with savings. However, it cannot be sustained because sooner or later at this rate, China will exhaust their savings and begin using credit.

12:32 AM  

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