The credit crunch has not yet played itself out, and Asian economies are not immune from the effects of falling export revenues, leading financiers insisted this weekend. Their remarks struck a contrast with other officials and businessmen who have pronounced that the world economy has now turned the corner. Stephen Roach, chairman of Morgan Stanley Asia and the bank’s former chief economist, told Emerging Markets it was “premature” to say the worst of the credit crisis had passed.
“Everyone wants to celebrate the end of the credit crisis but this is a series of events that is only just being played out. If the credit crisis is behind us, we are only just beginning to feel the economic effects,” he said in a telephone interview.
Roach said the US slowdown was “taking a rare toll on the household sector that is over-levered and savings-short.”
“Consumption is going to come under protracted pressure for several years, and that implies a long period of what may be a shallow but drawn-out recession.” Roach dismissed suggestions that domestic demand would insulate Asian economies from the impact of falling export revenues.
“The [Asian] region still remains heavily dependent on exports as its source of incremental economic growth, while the development of private consumption domestically has been lagging,” said Roach. “Chinese domestic consumption in 2007 was 36% of GDP, and that is not nearly enough to insulate it from the impact of a global slowdown. The slump in the US housing market will get worse before it gets better, a senior mortgage market regulator told Emerging Markets this weekend, adding to fears of a long slowdown in the US that will hurt Asian growth.
Allan Mendelowitz, a director of the Federal Housing Finance Board, an independent regulator, said that the US government was not doing enough to address the issue, and called for incentives for buyers to re-start the market.
“To get a real fix that is comprehensive requires leadership from the administration, and this administration is ideologically bound in a way that they can’t come up with what they really have to do,” he said. “You need to intervene to stop the foreclosures that are adding to the supply side and you need to jump start demand.”
Some 650,000 foreclosures were recorded in the first quarter of 2008, more than twice the figure for the previous year, while the number of unsold homes had doubled in the last three or four years, he said. US residential house prices have already fallen by almost 13% in the last 12 months to the Standard & Poor’s Case-Schiller index.