FocusAPIC '10: Asia export recovery threatened by Europe debt woes

14 May 2010 04:12  [Source: ICIS news]

By Pearl Bantillo

MUMBAI (ICIS news)--The Greek debt crisis may usher in a prolonged recession for some of Europe’s fiscally weak economies, potentially dragging the recovery of Asian exports, analysts said on Friday.

Petrochemical players were anxious on developments in the eurozone given the region’s importance as Asia’s major trading partner after the US sank deep into its own economic mess last year.

PTT Chemical sees some possible weakening of demand from Europe, said Narong Bunditkamol, executive vice president for olefins – shared facilities at Thailand’s PTT Chemical.

“There will be a little impact, but not so much,” he said on the sidelines of the Asia Petrochemical Industry Conference (APIC) 2010.

The 27-member EU was dealing with a debt problem that could morph into a major crisis if not contained, analysts said.

“All the recent bad news on Greece and the European debt crisis has dampened sentiment in China,” said a Chinese producer of styrene butadiene rubber.

“Traders are very cautious and will wait for a clearer picture before they return to the market,” he added.

Like another massive wave falling upon a battered structure, a new crisis in Europe would be a painful blow when the global economy was just getting back its bearings after battling the worst recession it faced in decades.

“From an export perspective, the smaller, highly open countries like Hong Kong, Singapore, Malaysia and the Philippines remain the most exposed,” said DBS Group in a note on Thursday.

Countries that rely more on their domestic economies like China, India and Indonesia would be least affected, it said.

The EU’s decisive move to stave off the contagion of Greece’s debt problems was welcomed across the financial and commodities markets – equities surged and oil prices spiked - but this optimism must be tempered with caution, analysts said.

“There is risk of the financial turmoil getting out of hand,” said David Cohen, chief economist at research firm Action Economics.

The huge bailout in the form of a €750bn ($938bn) safety net by European Union and the International Monetary Fund over the weekend, was reminiscent of the US’ bank rescue package in late 2008 after the collapse of investment bank Lehman Brothers – widely contested but deemed necessary to calm the markets down, analysts said.

Investors were pacified for now that measures were being undertaken to prevent the crisis from spreading to other countries like Spain and Portugal, but the massive financial package comes at a price.

Austerity measures would have to be strictly adhered to, boding strains to economic recovery, analysts said.

The attendant fiscal tightening to access the EU funds “increases the risk of recession in many euro zone nations”, said David Kowalczyk in a recent note.

“The world is more interdependent than ever before. A recession in Europe would hurt today and 20 years hence,” DBS said.

The recent European turmoil had raised the downside risks on DBS’ forecast for a 1.1% global GDP expansion this year and a 1.5% growth in 2011, even as these projections had factored in weakness in EU, it added.

($1 = €0.80)

With additional reporting by Helen Yan

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By: Pearl Bantillo
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