Box 1: Asia Decoupling?
Whether Asia's growth cycle is becoming less dependent on, or
"decoupled" from, the US is a long-run phenomenon requiring
the establishment of well-diversified final markets for Asia's goods.
In the October 2007 issue of the Macroeconomic Review, MAS
examined the US-Asia decoupling hypothesis, and found that
the long-run elasticity of regional goods exports to changes in
US personal consumption expenditure (PCE) remains relatively
high-every 1 percentage point change in US PCE results in an
approximately 2.2 percentage points change in Asian exports
This suggests that final demand in the US continues to have a
large impact on Asian exports and overall output, and is consistent
with the results of previous studies3 that have looked at intraregional
and extra-regional trade flows. A full-blown US recession
would, therefore, weigh heavily on regional export growth and
There is, nevertheless, the possibility of a weaker synchronisation
between US and Asian growth cycles over a short-run horizon.
While the pace of US economic expansion has slowed sharply
in recent quarters, other regions of the world have provided some
short-term buffer to Asian growth.
The April 2008 issue of the Review also showed that Asia's export
growth has been supported, in part, by higher demand from
within the Asian region (Chart 3).
In particular, China's robust domestic demand has become
increasingly able to buffer the region from a slowdown in the US
economy, at least in the short term. This is evident when we
compare the size of final demand for Asia's exports from the US
and China. In 2000, US' final demand for Asia ex-China's exports
was nearly nine times that of China. However, this ratio fell to
around five times in 2007. This has helped boost electronics
exports from Taiwan and Korea to China, while a number of
resource-rich Asian economies have also benefited from China's
huge appetite for industrial inputs and commodities to power its
rapid industrial expansion. Thus, there appears to be some shortterm
substitution taking place in recent quarters, as regional
exporters seek out opportunities in the growing China market to
partially offset the softening of US import demand. Nonetheless,
it is necessary to continue monitoring export performance closely
to see if these trends persist in light of recent developments in
the global economy.
3 See, for example, Asian Development Bank, "Uncoupling Asia", Asian Development Outlook 2007,