ESCAP: significantly codependent – When China catches a cold, trade and growth in the Asia-Pac region will have to brace for impact. Particularly affected is the two-track Australian economy.
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China slowdown cost Australia $US2.4bn: UN
Source – Yahoo7 Finance, published December 17, 2012
The downturn in China’s economy since 2011 has sliced $US2.4 billion ($A2.29 billion) off Australia’s economic growth and led to a slide in export income of $US2.6 billion, according to a United Nations report.
The report by the UN’s Economic and Social Commission for Asia and the Pacific (ESCAP) found the cost to the region was $US49 billion in growth with $US76 billion lost in export income.
The slowdown in China’s economy was a direct result of the recession in Europe and anemic growth in the United States economy.
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Regionally, Japan was the hardest hit by China’s slower growth with output and export income losses of $US16.3 billion and $US14.7 billion respectively. Other economies affected by the slowdown included Taiwan, South Korea and Hong Kong.
ESCAP economists forecast China’s growth for 2012 to ease to 7.8 per cent, but say it will show signs of recovery in 2013.
“The slowdown in China during 2011/12 has had a significant impact on the region,” the Economic and Social Survey of Asia and the Pacific 2012: Year-end Update says.
“A substantial part of the slowdown in China is related to the country’s slowing exports,” the mid-year review adds.
The wider regional impact came as companies supplying China in the region were hit by the decline in demand. But other factors in China were also at work, the UN economists say.
“An added concern is that a significant portion of the slowdown in China is related to domestic factors. Investment in the economy has slowed due to monetary policy tightening over the past months in an effort to reduce inflation and in particular to tame increases in property prices,” the review adds.
The impact of China’s downturn comes as key sectors in the Australian economy, especially tourism, manufacturing and exports, are being hit by the Australian dollar’s strength.
Anis Chowdhury, director of ESCAP’s Macroeconomic Policy and Development Division, says the Australian economy is facing “serious problems” largely because of the strong Australian dollar.
“With the exchange rate appreciating, that has affected your tourism and your manufacturing very seriously,” Dr Chowdhury told AAP.
He said the impact on manufacturing means it is unable to compensate for the losses in income from minerals and energy sector exports.
Dr Chowdhury said Australia needed to do “something very drastic on the exchange rate and productivity side”.
“The exchange rate is a killer for the manufacturing. Now it’s too high and you can only offset the exchange rate effect by improving productivity, and productivity improvement has got so many factors – it’s not just labour market reforms,” he said.
Earlier, Dr Chowdhury told journalists the impact of the slowdown in 2012 on overall development in the region was “substantial”.
“Job and income growth is expected to decline, with fewer people forecast to be able to pull themselves out of poverty,” he said.
China and India, which had proved resilient in the early part of the financial crisis of 2008/09, had recently slowed markedly, leading to other Asia-Pacific economies being affected through a decline in inter-regional demand.
But growth across the Asia Pacific is forecast to expand by 6.3 per cent in 2013, up “slightly” from 5.6 per cent in 2012, with China’s growth at 8.2 per cent and India recovering “moderately” to 6.8 per cent in 2013.