Ray Hendon’s Economics Blog

From the looks of the chart below, don’t talk of decoupling in Taiwan. In a country where almost 50% of GDP comes from exports, the world wide recession is having a devastating effect. With exports down 40% from last year, Taiwan is suffering a 20% drop in GDP if last month’s losses are annualized.

Compare this with an expected GDP drop in Germany or America of from 1-2% and you see how the losses in their major markets translate in a multiplier effect of around 10 times in Taiwan. They are not decoupled with America and Western Europe. They depend on demand from these regions to fuel their internal employment and growth.

On Thursday, January 22, Japan said exports fell 35 percent in December from a year earlier as the crisis hurt its main markets. Japan is being hit by a triple whammy: its economy is slowing for internal reasons, its exports are slowing because of the recessions in its major export markets of America and Europe, and the yen is rising, making the first two problems even worse.  Sony Corporation lost almost $2 Billion last year–its first loss in 14 years, much of which is attributable to the rising yen and the global recession that adversely affects its high value products.

The rise in the yen is a payback of a decade of being the borrowed currency in the carry trade.  Now that interest rates all over the world are dropping, all those who borrowed yen to invest in higher interest rate currencies are being forced to buy back the yens they borrowed.

UPDATE on Japan

On February 15th Japan announced that its real GDP  shrank at an annual rate of 12.7 percent from October to December after contracting for two previous quarters. When compared with the third quarter of 2008, Japan’s economy receded 3.3 percent.  This was the worst drop since the first three months of 1974.

“There’s no question that this is the worst recession in the postwar period,” Japan’s economic minister, Kaoru Yosano, said after the results were released.

The dismal figures also place Japan firmly among the worst-hit in the global crisis, dwarfing economic declines in the United States and Europe.  The United States GDP declined at a 3.8 percent annual rate in the fourth quarter and 1 percent when compared with the previous quarter.

This will probably thaw out the fiscal freeze that has gripped the Japanese legislative process for the past months. Prime Minister Taro Aso has promised spending worth almost 50 trillion yen ($545 billion) in two packages. But political bickering in Parliament has slowed progress.

In South Korea, industrial production is dropping at the fastest pace since record keeping began in 1975.  Only Vietnam and Bangladesh are holding up, mostly because they produce low value-added goods that are increasing in demand, such as cheap clothing.

In China, economic growth slowed sharply during the last quarter of 2008, to 6.8 percent, and to 9 percent for all of 2008, down from 13 percent growth in 2007, the Chinese National Bureau of Statistics reported. And the South Korean economy shrank 3.4 percent during October to December compared with a year earlier.

Keep in mind that the data from China is of an unknown quality. The Chinese government is the sole keeper of production, employment and monetary data, so I am always a little skeptical of the accuracy of what they publish. Compared with America and Europe, China is more closed to the inner operations of the bureaucracy that husbands their national data.

Indonesia is the least susceptible of those shown to a slowdown in the west. It has the world’s fourth largest population and can depend more on internal aggregate demand than almost any other economy in Asia. Taiwan and South Korea are the most dependent on exports to sustain their local economies.