The famous adage 'if the US sneezes, Asia catches cold' still holds true. Asia is expected to feel the heat of the credit crunch in the world's largest economy in the second or third quarter of this year, global credit rating agency Moody's has said.
"With the US recording two successive quarters of weak growth, we anticipate Asia will soon begin to feel the pinch of slower demand across the Pacific," said Daniel Melser, senior economist in Moody's Economy.com, a unit of Moody's Corporation.
If history is a guide, then expect export numbers around the region to begin sliding in the second and third quarters of 2008, Moody's Economy.com said in its latest report.
Historically, Asian exports fell about six months after US growth slackened. "...we expect Asia to begin feeling the US slowdown in mid-2008," it said.
However, believers in the decoupling theory argue that the Asia Pacific region is well poised to handle the US credit crunch.
According to the decoupling theory, Asia today is stronger and more self-reliant than in the past. The Asia Pacific region is less dependent on US-bound exports.
Besides, domestic economies of most Asian countries are now strong enough to keep the US recession from hitting Asian shores.
Moody's Economy.com has also observed that 'thus far surprisingly little effect on Asian economies from the US slowdown has been seen'.
The gross domestic product of the US grew at a limp 0.6 per cent annual rate in the first three months of this year but
there are no signs yet that Asian exports have slowed, Moody's Economy.com said, but questioned as to whether it will last?
Contradicting the decoupling theory, Moody's Economy.com said: "The fact that Asian and US growth have moved in lock-step for much of the recent past suggests that the region is unlikely to be entirely isolated from a North American slowdown."
"The strength of the association between US and Asian growth has changed over time, but not in ways we would expect if the regions were truly decoupling" it said and added that "the correlation between annual GDP growth rates has in fact increased in recent years, implying the two regions are economically more tightly aligned than ever."
According to Moody's, there was actually a decoupling of the US and Asia, but it occurred in the 1990s. Investment and domestic demand in many Asian economies surged during that decade, until the financial crisis of 1997-1998 reversed many of those trends.
More recently, the growth paths of Asian and US economies have again converged, with correlations indicating a strong and growing positive association. Thus the last few years has marked a period not of decoupling, but re-coupling.
Growing trade diversification has seen a mounting share of Asia's exports heading to high-growth areas such as Eastern Europe, the Middle East and the Latin America.
But the US is still Asia's number one customer, accounting for over a third of exports, thus effects from a US slowdown are likely to be sizeable.
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