The Malaysian Insider
Jun 20, 2012

KUALA LUMPUR, June 20 — Trade-dependent Asian countries including Malaysia will take a major hit if the euro zone economy collapses and will require China’s aid to hobble along, according to the Wall Street Journal (WSJ).

The newspaper highlighted the point that Malaysia has bank loans from Europe equal to 20 per cent of its gross domestic product (GDP), which it said was high for the region, and would be more troubled compared to financial hubs Hong Kong and Singapore, both of which have huge “rainy-day funds” to keep homes and businesses above water.

While China, the world’s biggest economy after the US, would be able to withstand the global slump due to its closed financial system, WSJ said Malaysia’s growth would be lessened.

“If China doesn’t open the stimulus floodgates, that would mean less of a boost for its neighbours, including commodity exporters such as Australia and Malaysia,” the paper said.

China is currently Malaysia biggest trade partner.

Malaysian rubber exports to China, used primarily to make tyres and gloves, totalled 43.2 per cent last year, significantly higher than its 3.6 per cent exported to the US or to the European Union (25.2 per cent).

Malaysia also exports 21.9 per cent of its palm oil to the Asian giant, compared with 5.7 per cent to the US.

Malaysia has reported a 4.7 per cent GDP growth for the first three months of the year, a third consecutive quarterly drop since it posted a 7.2 per cent increase in the second quarter of last year.

The international business paper reported that Asian countries were generally in better shape than in the West to deal with interest-rate cuts and government spending as they have learnt to weather a similar economic crisis in 2008.

But Asian economies stood at varying degrees of preparedness in dealing with a euro zone meltdown, with India, Vietnam and Japan likely to be among the worst hit.

Currencies would drop, shipping lanes would empty, and consumer and business loans would dry up, slowing down economies even further, the paper said.

WSJ predicted that such a scenario is still possible if Greece fails to live up to its commitment and quits the euro, or if Mediterranean neighbours Spain and Italy have to be bailed out, it said in its analysis titled “How Asia will fare if Europe cracks”, published yesterday.

“As we saw with Lehman (Brothers), when you get a seizure in the global financial system, nobody can hide from that in the short run,” the paper quoted Richard Jerram, the chief economist at the Bank of Singapore, as saying.

But he was reported saying that Asia is “well-positioned” to survive the Euro-crisis.

“A moderate recession in Europe doesn’t pose serious hazards here,” WSJ quoted Jerram as adding.