Economic downturn hits Asia as Japanese exports and Hong Kong GDP

HONG KONG: Japanese exports fell by nearly half in January and the Hong Kong government forecast Wednesday that its economy would contract as much as 3 percent this year - further signs that the economic downturn in Asia will intensify this year, despite the numerous stimulus measures being implemented around the world.

Much of the economic growth in Asia in recent years stemmed from strong exports, a dependence that has turned into a liability by transmitting the recessions in the United States and Europe to a region that was otherwise well insulated from the U.S. financial troubles that brought on what is now a global economic crisis.

Japanese exports in January plunged 46 percent from a year earlier and imports dropped 32 percent, echoing sharp declines reported recently by China and Taiwan.

Japan was one of the first countries in the region last year to tip into recession, as weakness stemming from poor domestic demand was compounded by evaporating demand overseas.

During the last quarter of 2008, the Japanese economy shrank an annualized 12.7 percent, and the trade data for January underpinned economists' views that the start of 2009 looks even worse.

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"We're looking at several more quarters of negative growth in Japan," said Simon Wong, a regional economist at Standard Chartered in Hong Kong, who expects the Japanese economy, the world's second-largest after the United States, to shrink by 3.2 percent this year.

Asia has not been alone in suffering from the export slowdown. Germany, another of the world's biggest exporters, saw its exports drop 7.3 percent in the fourth quarter of last year from the previous three months, according to data released Wednesday.

And demand for exports in the United States is unlikely to pick up soon. Ben Bernanke, the chairman of the U.S. Federal Reserve, said Tuesday that a full recovery in the United States was potentially at least a year away.

The Japanese export decline was in line with analysts' expectations, and was in part the result of the timing of the Lunar New Year holiday in January. But it indicated a significant worsening from an already grim December, when exports fell 35 percent.

The Japanese yen - whose strength has exacerbated weak overseas demand for Japanese goods by making them relatively more expensive - has weakened in the past three weeks, trading at about ¥97 to the dollar Wednesday, compared with about ¥89 in early February.

But it remains much stronger than levels of about ¥108 a year ago, and is expected to continue to hold down the Japanese economy, analysts say. Almost every big-name Japanese exporter has cited the yen as a main reason for a sharp drop-offs in sales and probable deep losses this year.

Honda, one of the few Japanese exporters still projecting a profit for the business year that ends March 31, on Wednesday provided the latest example of corporate pain, saying its vehicle production had plunged 33.5 percent in January.

In Hong Kong, meanwhile, the government said that it expected the economy to shrink 2 percent to 3 percent in 2009, continuing a deceleration that began last year, when the city recorded growth of 2.5 percent, compared with 6.4 percent in 2007. The last time the Hong Kong economy shrank for a full year was a decade ago, during the Asian financial crisis.

In the last quarter of 2008, the Hong Kong economy contracted 2.5 percent compared with figures for a year earlier, the government said Wednesday.

Like its fellow regional financial centers Singapore and Japan, Hong Kong slipped into recession late last year, in part because of its relative openness and the exposure to the financial sector. Unlike Singapore, which expects its economy to shrink by as much as 5 percent this year, economists say Hong Kong will be somewhat cushioned by mainland China, where the government has announced massive stimulus measures.

Hong Kong also announced a package of measures to support economic growth, including tax cuts and spending on public works projects, in what some economists termed a "conservative" reaction to the challenges at hand.

Shirla Sum and Enoch Fung, economists at Goldman Sachs, commented in a note Wednesday that the plans offered "few policy offsets against the backdrop of a weakening external environment." The two economists expect the Hong Kong economy to shrink 5 percent in 2009.

Elsewhere in the region, South Korea said it would offer a fund of 20 trillion won, or $13.19 billion, to bolster its commercial banks and dispel worries about the stability of its financial sector.

And the Thai central bank cut its major rate for the third time in as many months, by half a percentage point to 1.5 percent.