Asia Needs To Create More Of Its Own Growth

Eight years on, Asia’s financial crisis seems a distant memory. Despite higher oil prices, growth has rebounded in many countries, private investment is gradually recovering, consumer confidence is strengthening and rising current account surpluses are swelling foreign exchange reserves, writes The Financial Times in an analytical piece.However, the party could quickly end. The reason is that so much of east Asia’s recovery, like its pre-crisis growth, has been export-led. Its main motor is exports to China, whose own growth depends significantly on markets in the US and Europe. That leaves the region uncomfortably exposed to external shocks. The biggest threat is not from a re-pegging of the renminbi and other Asian currencies against the US dollar: most economies could absorb the competitive impact of any likely revaluation. The greater risks are, first, that simmering protectionist pressures will boil over in the US and Europe; and second, that east Asia will exhaust its capacity to fund the twin US deficits by acquiring US assets, so triggering a dollar collapse, soaring US interest rates and recession.Asia needs to guard against those dangers. The best way to do so is to generate more of its own growth by stimulating domestic demand. Bigger investment