Region to benefit from China, recovering US: analysts

Bangkok (The Nation/ANN) - Should the rising tension in the South and East China seas not escalate further, Thailand and the whole region will benefit from the resilience of the Chinese economy and signs of a US recovery, analysts say.

Though the new Chinese leaders promise to tackle corruption, the relatively high economic growth rate of 7-8 per cent is expected to be one of the main issues that they cannot afford to overlook.

Looking back, analysts point to a cycle of government spending after new leaders take office in China partly because they want to gain political popularity. So Beijing is expected to invest more in infrastructure projects.

"There is room for government investment in infrastructure projects as the government will continue to develop the poor western part of the country," Sompop Manarungsan, president of the Panyapiwat Institute of Technology, said yesterday.

Another reason is that China has to rely more on the domestic market. The leaders also will address the widening income gap between the rich and poor. New spending is expected to support the lower income group, which would translate into more consumption.

While among the weak advanced economies, the United States obviously does better than its peers. Its gross domestic product grew 0.5 per cent in the third quarter from the previous quarter, which grew 0.3 per cent. Japan is still struggling in negative territory with GDP contractions of 0.1 per cent and 0.9 per cent in the same period, while the euro area fell back into recession by shrinking 0.2 per cent and 0.1 per |cent in the second and third |quarters.

Economists see the high uncertainty of the global economy remaining.

"Japan, the US and other advanced economies are facing the common issue of banks that are reluctant to lend," said Teerana Bhongmakapat, an economics professor at Chulalongkorn University.

While the US economy has expanded, unemployment remains at a high 7.9 per cent.

"I don't know when unemployment will fall below 5 per cent," said Roger Myerson, the 2007 Nobel laureate in economics, responding to a question of when he expects a full recovery.

Paul Krugman, another Nobel laureate, posted on his New York Times blog that the US did better than its peers because the government was still implementing an expansionary policy while the euro area and United Kingdom, which are embracing austerity spending cuts, did badly.

Yet the "fiscal cliff" - tax increases and spending cuts due to start in January - is a main concern that might derail a US recovery. US President Barack Obama wants to implement a mix of some spending cuts and tax rises on higher income groups. He has to negotiate with the Republicans, who control the House of Representatives. John Boehner, the Republican Speaker of the House, recently said his party was willing to consider increasing revenue as long as that was accompanied by spending cuts.

The solution should be fiscal expansion, not austerity, Krugman said.

Based on this scenario, many would want US fiscal expansion to be continued for a little longer, though the large fiscal deficit |will eventually have to be addressed.

Thailand, an export-dependent country, will surely benefit from the ongoing relatively high growth in China and recovery in the US, as the two are its main overseas markets.

The biggest risk factor in the Asia-Pacific region is the tension in the western Pacific Ocean among China, Japan, South Korea, Russia, Taiwan, Malaysia, Vietnam, Brunei and the Philippines from conflicting island claims. As the US is also stepping into this game, the situation could stabilise - or become worse.

COPYRIGHT: ASIA NEWS NETWORK

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