'Decoupling' Re-emerges as Asia's Economy Bounces Back

The Wall Street Journal reports that investors are again embracing the idea of "decoupling" as markets in Shanghai, Hong Kong and Singapore are up nearly twice as much as those in the U.S. and Europe as their economies recover strongly from the recession.

 

In economics, decoupling refers to the ability of an economy to grow without corresponding increases in environmental pressure. In many economies increasing production (GDP) would involve increased pressure on the environment. An economy that is able to sustain GDP growth,

without also experiencing a worsening of environmental conditions, is said to be decoupled.

 

According to the Journal, optimism about Asia focuses largely on China's success in reviving the economy with stimulus spending and easy credit. The report adds that exports to China are helping a number of other economies recover, too, including Japan, South Korea and Singapore. China's demand for metals is also boosting Australia's economy.

 

"I actually think we had decoupling in train since the middle of 2006, and that process got derailed temporarily by the breathtaking disruption in financial markets when Lehman went under," Frederic Neumann, an economist with HSBC in Hong Kong tells the newspaper. "Now

we have it back, thanks in large part to loose monetary conditions."

 

The Journal says that economists and policy makers concur that Asian consumers need to spend more if the region's manufacturers aren't to rely on exports.

 

However, the Journal writes that not everyone believes in the decoupling concept. "Decoupling is a myth," Stephen Roach, chairman of Morgan Stanley Asia, told the Journal. "In the aftermath of the post-Lehman demand shock in the developed world, every single Asian economy either slowed sharply or tumbled into outright recession. How can anyone call that decoupling?"

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