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Bond Outlook July 8 2009

A positive side in the shift in economic power from West to emerging Asia: growing consumption in China inter alia looks like pulling the world economy out of recession.

Bond Outlook [by bridport & cie, July 8th 2009]

“Asia bails out the Western economies” would not be such a fanciful headline in the financial press. The sea change in the world economy, with an economic shift in favour of Asia, and which we again stressed last week, is now bringing benefit to the West, with Germany first in line to see an increase in exports to Asia great enough to wash through to growth in industrial output.

The parallel with the Titanic comes to mind. The West is rearranging the deckchairs, focussing on how to regulate financial markets and return to fiscal probity. Meanwhile, the Chinese and fellow Asians are already in lifeboats and rowing steadily to safety. Be grateful that a few places are left for German exporters and the like, including Japan, which was actually the first to benefit from resurgent regional demand.

In all the arguments about whether the stimulus is working, about when and how banks will again start lending, or whether we will see inflation or continued deflation, the key issue most commentators ignore is growing domestic demand in emerging Asia.