Sovereign debt contagion to hit East Asia
World Bank joins the ranks with IMF in expressing major concerns over the sovereign debt crisis impacting Asia
Asia has been the pin-up for growth and opportunity for financial markets for some time. In fact, its status as a beacon for recovery has only been heightened by the woes of the West.
Asia has grown substantially during the past five years in industrial output and services, and energy demand and output, while the liberalisation of China’s currency the renminbi has helped the region to gain significant ground as a global superpower.
There is no doubt that there would naturally be a slowdown in growth – as such growth rates are simply not sustainable – but heightened risk within the region and the sovereign debt crisis inevitably has had an impact on Asia.
In other words, you can make, build or produce as much as you like, but if externally no one is buying it, then where does that leave you? Well, according to the International Monetary Fund's latest report, a rather worrying situation:
On Tuesday, the World Bank joined the IMF in outlining weakening external demand for East Asia, after the uncertainties surrounding Western countries in line with the sovereign debt crisis, and claimed that Asia needs to start honing in on domestic demand to avoid a systemic collapse:
Only last month, the IMF warned of the US and eurozone problems “spilling over” into Asia and focused on the risks that weakening external demands pose for the region:
In no uncertain terms, Bert Hofman, the World Bank’s chief economist for the East Asia and Pacific region, announced that in the group’s 'East Asia and Pacific Economic Update':
While the sovereign debt contagion hitting Asia is highlighted in the World Bank and IMF reports, the risks within China’s financial system is another source of concern, which has been covered extensively by Euromoney:
IMF: Domestic risks to China’s financial system four-fold
GDP growth in China dependent on maintaining social stability
Asia's banks not investors' financial utopia
Investment banking: Do more due diligence
What's behind the great China stock scandals?
- Euromoney Skew Blog