Fear factors for Asia in 2012

  • Business
  • Saturday, 31 Dec 2011

As we bid farewell to a volatile 2011, and usher in a seemingly more challenging new year, StarBizWeek polls 10 major factors that could trigger economic fears in Asia in 2012.

So here goes:

Faltering European economy

Europe commemorates its 10th anniversary of the introduction of the euro, a common currency used by 17 nations tomorrow.

But there's nothing much to celebrate as the region remains engulfed in a deepening debt crisis.

The entire 27-nation European Union is currently at risk of further downgrades by international credit rating agencies, and recession next year is almost inevitable. The ongoing austerity drive will limit policymakers' ability to boost their economies.

The intensity of the region's problems will have an adverse impact on the global economy, and Asia, including China, will not be spared, and will likely see slower growth.

American nightmare

The world's largest economy will muddle through,subdued by housing problems, unemployment, budget cuts and potential spillover effects from Europe's debt crisis.

The United States has its own debt crisis, after having amassed debt amounting in trillions of dollars over the last couple of years. This burden will only grow as the US government is expected to need more money to enable it to pay its bills on time.

The country is at risk of further credit rating downgrade.

There will be a presidential election in November, and all eyes are on whether President Barack Obama can win a second term in office.

China's slower growth

China's economy is showing signs of slowing growth, as its major customers in the developed world, namely the United States and Europe, continue to grapple with their own economic problems.

Many economies in Asia have been riding on China's coat tails for growth through exports into the world's most populous nation over the last two years since recovering from the global financial crisis. So, if China's economy were to slow further, many economies in the region will follow suit.

A hard landing in China, generally defined as a sharp slowdown to as low as a 5% gross domestic product growth, may not be a base-case forecast among most economists for 2012. But they reckon that it is still a plausible downside risk of which investors should be aware.

In politics, President Hu Jintao will likely be succeeded by his Vice President Xi Jinping; while Premier Wen Jiabao will likely be replaced by current Vice Premier Li Keqiang.

Trade war

The shadow of protectionism still looms in 2012, with trade disputes likely to increase as governments squabble over currency issues and perceivably unfair policies. Trade war could put millions of jobs in jeopardy and thwart economic growth.

Raging earth

From crippling floods in several countries in Asia and famine-inducing drought in the Horn of Africa to the devastating earthquake and tsunami in Japan, 2011 has been a year of unprecedented bad weather and natural disasters for the world.

No one knows whether 2012 will see the same trend, but one thing for sure, climate change and natural disasters are becoming more extreme and costly these days. Even the United Nations have warned that the world is “dangerously unprepared” for future crises of this sort.

Disease outbreak

The deadly H5N1 strain of bird flu virus revisited Hong Kong this Christmas, resulting in the culling of more than 17,000 chickens last week, and the banning of the sale and import of live poultry into the city until the middle of next month.

This is a reminder that a deadly virus can strike anytime.

Social unrest

Civil unrest has become commonplace not only in MENA (Middle East and North Africa), but also in the United States and Europe. Rising cost of living, poverty and unemployment are among the factors driving people into the streets.

In China, civil unrest is also boiling as its economy slows.

Geopolitical risks

The growing political tension in the Middle East is creating fears that oil production could be disrupted, and cause commodity prices to rise.

There is also the uncertainty created by the change in North Korea's leadership after the recent passing of its rule Kim Jong Il.


Inflationary pressure in Asia may have started easing gradually since the second half of 2011, after commodity prices softened and worries about a global economic slowdown grew, but consumer prices in general have remained stubbornly high in the region.

The Asian Development Bank has listed persistent or resurgent inflation as one of the main risks for emerging East Asia.

There is growing expectation that the US Federal Reserve could unleash the third round of quantitative easing (QE) in the first half of 2012. Assuming QE3 leads to a weakening of the US dollar (which in theory, it would), global commodity prices will rise again, leading to renewed fears of inflationary pressures in Asia.

Slowing investments

In the face of declining global growth, many countries in Asia have begun looking inwards, putting up initiatives to spur private investment so that it becomes their main engine of growth.

But there are worries that the weakening of confidence in the economy could cause some businesses to put off their investment plans. The burden then is on policymakers to reignite confidence among the private sector in their economies.

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