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Archive for July 22nd, 2011

The biggest challenge that Emerging Asia Pacific Economy are facing is the problem of inflation. Almost no Asian country is immune to inflation considering the rocketing rise in crude oil price. To counter the problem the every country has hiked the bank reserve ratio to slowdown the lending and credit growth. The other major problem faced by these economy is rise in food and labor cost which is making things bit more difficult for the emerging economy to sustain the economic growth rate.

Exports in these countries have so far fared well, even though there was uncertainty considering the slow recovery of US economy and debt-laden European countries

China reported export jump in the month of June which helped it in posting its largest trade surplus after many months. While India reported 50% increase in its exports. Other Asian export power house like South Korea and many other exporting Asian countries have seen decent exporting figures, thanks to rising global demand in shipping, steel & auto sector.

Here is a quick summary of some strong Emerging Asia Pacific Economies.

China: The major problem faced by Chinese economy is inflation, slowing consumer spending and slowing real estate and property sector. Chinese’s policy makers are focusing on the challenges faced by the economy in order to curb inflation and to revive and upgrade consumer spending to boost domestic consumption which will help the negatively growing property market to regain its foot.

China has been fighting inflation form last one and a half year after it exceeded the 3% inflation ceiling mark set by China’s National Development and Reform Commission. Rise in input cost have always troubled the Chinese economy to maintain the inflation rate below the ceiling limits. By late 2010 the inflation touched 4% and by May 2011 the inflation rate touched 5.2% mark.

Though China has taken various measures to moderate the rising inflation, since then it has hiked the lending rates four times since October 2010, and the bank reserve ratio have been revised 6^th time to 21.5%.

India: India too faces similar problem like China, with tremendous rise in inflation the economy is seeing pressure in its growth momentum.

To counter inflation the Reserve Bank of India tightened up monetary policy, it increased the cash reserve ratio with banks which made borrowing rates to go up. The raise in borrowing cost has ignited negative sentiments from the private sector. Hence many consumer durable companies have put their expansion plans on hold as they forecast slowdown in sales. Were as many capital intensive industries are giving up some projects due to lack of freely available capital. India’s industrial production also fell in the month of May to 6.3%.

South Korea: South Korea too is no different from the county mentioned above as pressure of inflation is also bothering this economy. South Korean  economy has been battling inflation from past 18 months which was contributed by rising exports, falling unemployment, and rising availability of consumer credit.

South Korean export-based industries have seen tremendous expansion due huge global demand for its consumer durable, auto and industrial input. Exports grew by 22.4% in the month of May.

The growth in export industries has also helped the labor market as unemployment rate was reduced to 3.3% in May. But in the month of May the inflation figures reached 4.1% exceeding the ceiling figure of 4% set by the central bank. The rise in consumer price inflation is also believed to be spreading to core inflation. In May, core inflation figures climbed to a two-year high of 3.5%.

It was surprising to see South Korea’s central bank and the Bank of Korea not raising the interest rates looking at the current trend of inflation in the country.

Taiwan: It was a good time for the Taiwan’s exports industry as exports grew at a pace of double digit for the past several months, until May when the figures dropped down to 9.5%. Taiwan’s economy is highly depended on exports as two third of the country’s total income comes from it.

The inflation figures too recorded an upside in the month of May which reached 1.66% from 1.32% in the month of April, even when export dropped in the country. The reason for inflation growth can be attributed to strong domestic consumption, robust investment and wage rise.

Considering the growth in inflation Taiwan’s Central Bank again decided to hike interest rate by 125 basis points. Since the beginning of 2011 the country is witnessing hike in interest rates for the fifth time.