CONTENTS
HOME
OUR WORK - Managing Risks, Sustaining Growth
A MORE CHALLENGING POLICY ENVIRONMENT
MONETARY POLICY - PROVIDING AN ANCHOR FOR PRICE STABILITY OVER THE MEDIUM-TERM
MANAGING THE CHALLENGES OF INCREASED GLOBAL FINANCIAL UNCERTAINTY
A SOUND AND PROGRESSIVE FINANCIAL CENTRE
CURRENCY
 
MONETARY POLICY
- PROVIDING AN ANCHOR FOR PRICE STABILITY OVER THE MEDIUM-TERM
15
 
Enhancing Monetary Policy Research 16
 
Box Story 1 - Asia Decoupling? 18
 

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 (Chart 2).

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 economic activity.

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,
March 2007.