Fears are swirling through Asia that the unrest in Thailand and Malaysia, the economic and political woes of Japan and the continuing weakness in South Korea might be a precursor to more serious problems at a time when the Australian economy’s sole remaining lifeline is linked firmly into the region.
This week’s National Account and trade figures showed that the booming resource sector led by miners and exporters of coking and thermal coal and especially iron ore, boosted corporate income and profits to the point where it and the sector’s investment plans stopped the economy from dipping into the red in the June quarter.
We received a nasty reminder yesterday that our trade performance is not permanent and might be a bit more tenuous than we think.
The trade surplus evident in June disappeared in July with the Australian Bureau of Statistics reporting a $717 million deficit as exports stalled and imports, particularly of oil, surged.
The deficit compared with a revised surplus of $351 million in June (It was $411 million in the original report).
The deficit is far worse that the small surplus expected by the market.
The ABS said exports fell 1% to $22.9 billion in July, with rural shipments down 3% and coal off a large 9%.
Imports rose 4% to $23.6 billion as the oil price rise (world prices peaked in mid July at more than $US147 a barrel) sent the cost of fuel imports surging by 29%.
The price falls since then will trim, but not by as much as it could have because of the sharp fall in the value of the Australian dollar, which is now 16 cents or well over 16% lower.
The Aussie dollar fell again overnight to just above 82 US cents.
The Aussie’s fall is inflationary, so imports, such as oil will cost more, instead of the way the stronger dollar cushioned us against higher oil prices in the past year.
But we should watch Asia closely, not just for China. The rising level of instability is an unwanted reminder of the problems of a decade ago and the last Asian crisis.
It won’t happen again, if politicians and others hold their heads, but that’s going to be difficult.
Thailand and Malaysia could emerge as the flashpoints, while South Korea shouldn’t be ignored as it struggles to stabilise an economy that is stuttering, while the Government is under pressure from an increasingly sceptical electorate (And don’t forget North Korea which seems to be again trying to frustrate anti-nuclear agreements it signed up to respect)
Despite a belief a year ago that Asia and other emerging markets (ex-Japan) were bolt holes for nervous western money driven out of the US and other markets by the subprime mess and credit crunch, that hasn’t proved to be the case.
Asian equities are the worst performing stocks globally this year: most markets have fallen by between a quarter and a fifth.
Weakening exports are to blame for open economies like Singapore where non-oil exports fell year-on-year for the third consecutive month in July.
Dynamic Hong Kong is looking at economic growth halving next year from the current level of just under 7%, while in less open economies like Thailand and Malaysia, artificially low interest rates (in nominal and real terms) are fuelling inflation, which is hurting consumers, who are also voters.
South Korea is suffering from both problems, as well as being crushed by the still high levels of private sector debt. And every time the won falls, inflationary pressures are stoked and business has to pay more for their foreign debt.
The slowing global economy makes it tougher for South Korean exporters to take advantage of the cheaper won, as US exporters have ridden the weak US dollar for the past four years.
China is of course the main customer and there was a large bit of good news out this morning with a well-timed leak in official media that China’s consumer inflation rate eased in August less than 6% annual rate from the 6.3% in July’s: a sign that the economy isn’t feeling too much stress from high oil and food prices any more.
Central banks in Thailand, Malaysia, South Korea and The Philippines have been reported as intervening this week to support their nervous currencies: South Korea’s central bank has been trying to stop its currency, the won from falling for the past three or more months, without much success.
There’re signs of some capital flight as investors sell out of stockmarkets in the region which have fallen and then sell the currencies: it has been this selling that has forced the central bank support.
Thailand’s anti-democracy demonstrations are emerging as the major concern; as they have the capability to get rid of the current Government.
The army, which intervened in a coup a couple of years ago after Thaksin Shinawatra fell as Prime Minister, seems to be giving active support to the demonstrators by refusing to clear them from the Government House in Bangkok.
The demonstrators want a return to partly elected, partly appointed parliaments and more control for the Bangkok based urban middle classes who object to the support and power the less well off have given Thaksin and the present government.
The Thai Prime Minister, Samak Sundaravej yesterday refused to resign or call new elections, even after his Foreign minister quit yesterday.
Reuters said that in an hour-long national radio address, Samak sought to shore up his public support, proclaiming himself as a defender of Thailand’s democracy and its revered monarchy, against a movement that he described as "lawless."
The People’s Alliance for Democracy (PAD) has spent the past 10 days occupying the grounds of Samak’s Government House offices, demanding his resignation over claims that he is a puppet for ousted premier Thaksin Shinawatra.
But the PAD also wants to
