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VOL. 38 | NO. 31 | Friday, August 01, 2014
Asia’s growth depends on US
Ni hao! I write to you this week from Hong Kong. For the next 12 months I will be working remotely from China in order to closely evaluate conditions within the Asian economies.
In addition to my usual market musings I will share my Asian insights and inspirations as they arise … like this one.
Asian administrations speak very openly about their ambitions for national GDP growth.
Consider the following statements:
- In March, the Chinese government set an economic growth target of around 7.5 percent for 2014, along with an inflation target around 3.5 percent. – Reuters
- Taiwan is aiming for 3.2 percent economic growth over the next year, according to the 2014 National Development Plan passed by the Cabinet. – The China Post
- President-elect Joko Widodo says he’s aiming for a pace of economic growth that Indonesia hasn’t seen since before the 1990s Asian financial crisis. “When our economy grows more than 7 percent, I am very confident for Indonesia ... .” – South China Morning Post
- Senior South Korean government officials painted a rosy picture on GDP growth for 2014 when the Finance Ministry said “Economic growth will reach 3.9 percent on a year-over-year basis, outperforming the world’s overall GDP growth for the first time in four years.” – The Korea Herald
Unfortunately, the IMF lowered its global growth forecast last week by 0.3 percent. The surprisingly weak U.S. economy accounted for nearly all of the markdown.
In April, the IMF predicted 2.8 percent growth for the U.S. It now predicts 1.7 percent. Due to softness in the U.S., global trade estimates have also declined, falling by 0.3 percent to 4 percent.
Given the export nature of the Asian economies, softness in the U.S. creates growth headwinds in Asia. The IMF marked down Asian growth expectations from 6.6 percent to 6.4 percent.
This estimated growth reduction has created political tensions across the region. Leaders who promised higher growth rates must now act to offset weaker exports.
China has instituted an array of stimulus measures, South Korea announced new stimulus, and pro-growth, pro-business candidates won Indian and Indonesian national elections. In Asia, growth disappointments lead to voter discontent and “loss of face” for Asian leaders.
In an interview last week, President Obama confided: “If you think about where we were when I came into office, it’s pretty hard to find an economic measure where we’re not significantly better off.”
The interviewer retorted, “Mr. President…median family incomes … is not doing better.” Obama agreed and blamed technology, globalization and Congress.
Since presidential approval ratings in the U.S. bear little correlation with GDP growth, shrugging off growth disappointments seems justifiable. As such, U.S. political priorities do not align with economic growth achievement as neatly as Asian political priorities.
Ironically, this apparently frustrates growth-hungry Asians more than the Americans themselves. Look for Asian stimulus efforts to counterbalance western weakness, bolstering global growth rates and share prices.
Should the U.S. or Europe reclaim national political interest in economic growth, things could improve considerably for the world economy.
David Waddell, who is regularly featured in the Wall Street Journal, USA Today and Forbes, as well as on Fox Business News and CNBC, is president and CEO of Memphis-based Waddell & Associates.