lehmans buys bhp shares, page-32

re: 182 buyers at 25 The extent of that dependence is indicated by export figures. In 2005, 32 percent of China’s merchandise exports went to the US, along with 23 percent of Japan’s and 20 percent of the 10 countries of the Association of Southeast Asian Nations (ASEAN).

Over the past decade, the Asian economic growth rate has been higher than the US, but the share of the region’s exports going to the US has remained the same. In other words, the economies of Asian region have become more dependent on consumption demand in the US. This means that far from being able to counter the impact of the slump in the US, they will be significantly impacted by it.
Three commentaries published in the Financial Times over the past week have pointed to the increasing likelihood of a US recession that would have major implications for the global economy.

In an article published on August 10 under the title “The world must prepare for America’s recession”, New York University economist Nouriel Roubini warned that while the US Federal Reserve Board may have been hoping for a “soft landing” when it decided earlier this month to halt its cycle of interest rate rises, the decision has come too late and it now confronts a recession.

“The US recession will be triggered by three unstoppable forces: the housing slowdown; higher oil prices; and higher interest rates. The US consumer, already burdened with high debt and falling real wages, will be hard hit by these shocks,” he wrote.

According to Roubini, the effects of the housing slump will be more severe than those that followed the collapse of the technology stocks bubble in 2000. This is because property comprises a much larger component of household wealth than technology stocks and about 30 percent of the increase in US employment since the recession of 2001 has been related to housing.

The latest US gross domestic product (GDP) figures were an “ominous signal” with consumption of durable goods falling, residential investment in “free fall”, and inventories on the increase as production confronts falling sales. “Higher investment in equipment and software, expected to offset lower spending on housing and consumption, is instead falling.”