Potential threats from Western economies continue to weigh on Cambodia and other Asian countries, with fear of default in Greece once again driving instability in regional markets.
Greece’s parliament this week managed to pass yet another austerity measure, though there are some media reports that default is by now inevitable. The possibility no doubt looms large, and as a result has kicked up investor fears both in Southeast Asia and abroad.
Regardless of how these events play out, experts have pointed to a growing strength in Asia that should over time result in less exposure to troubles in Europe, as well as the United States. There are signs of that resiliency even now, they have said.
“I think there is a very strong position to withstand what’s happening in the West,” said ADB assistant chief economist Joseph Zveglich, who’s based in Manila, this week.
Asia as a whole showed itself capable of recovering rather quickly from the global financial crisis, he said, and has since grown in ways that make it less dependent on the US and EU going forward.
Most notably, that includes increasing intra-regional trade and rising domestic demand, which “should help to provide a bit more of a boost for Asia in spite of the uncertainty we’re seeing in Europe,” he said.
While Zveglich recognised the still-large trade relationships between Southeast Asia and Europe, and the continued effect they’d have on ASEAN countries, he did note the trend toward greater links with other regional economies.
Rather than de-coupling from the West, Southeast Asia is seeking new sources of growth.
However, Zveglish admitted that some of the region’s most open economies may be victims of their trade relationships with the US and EU.
As a result, countries like Thailand, Malaysia and Cambodia could see greater declines than, say, Indonesia because they depend more on international commerce than they do domestic demand.
Of course, the Kingdom is an export-driven economy, with the World Bank estimating that exports in 2009 accounted for 60 percent of GDP. And in the first half of 2011, about 70 percent of exports went to only two markets – the United States and European Union – according to a recent report from the Economist Intelligence Unit. That increased exposure to the G2 surely played a role in what the EIU said was a 1.5-percent contraction in the Kingdom’s GDP in 2009.
At the same time, though, the fact the US accounted for about 47 percent of total exports may lessen any external impact on the Cambodian economy.
Zveglich said that while a downturn in Europe would affect some in the region, the impact should be less severe given the United States is the bigger trading partner.
Therefore, as long as the EU debt crisis was contained, thereby sparing the US, Asia in turn should be largely spared as well.
He is not alone in his outlook, as other regional experts share much the same views. Whether from the World Bank, Asian Development Bank or International Monetary Fund, the list of strengths and weaknesses given for Southeast Asia in the present environment were near identical: Domestic demand and intra-regional trade were beneficial; overexposure to EU markets was not.
The lingering question then was what would happen to Europe. Zveglich noted the risk of a worst-case scenario in Greece was possible, although he yet saw no signs such a fallout was imminent. He said he expected the EU to take the measures necessary to prevent a default.
In the meantime, Southeast Asian economies “continue to attract capital, overall production seems to be moving forward, and private investment seems to be strong in the first half of the year,” he said.
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