A blizzard of grim data this week points to a full-blown trade slump across Asia, confirming fears that the region's strategy of export-led growth would backfire once the West buckled.

Flemming Nielsen, from Danske Bank, said exports from Korea and Taiwan both shrank by over 20pc last month. "The numbers are terrible. Intra-Asian trade is in free-fall. Taiwan's exports to mainland China in November were down a whopping 42pc."

Then there's the sad case of Japan:

Over 1,000 Japanese companies went bust last month as the high yen squeezed margins. Sony is laying off 16,000 staff. Japan's industrial output is expected to fall by a post-War record of 8.6pc in the fourth quarter.


Zahra Ward-Murphy, from Dresdner Kleinwort, said Japan has slimmed down its bloated debt structure since its Lost Decade, but is still half-reformed and over-reliant on exports. "It has not rebalanced the economy towards internal growth: now exports are tanking," she said.


Tokyo is once again running low on policy options. The Bank of Japan is wary of cutting rates below the current level of 0.3pc for fear of damaging the money markets, a key lubricant of the credit system. It may soon need to revert to emergency forms of monetary stimulus know as 'quantitative easing'.

Earlier rescue plans have already pushed Japan's national debt to 170pc of GDP, the world's highest. Private savings have collapsed from 14pc of GDP in the early 1990s to 2pc today. Japan goes into this downturn without a cushion.

What a mess. Maybe Japan would be more balanced now (and still have a savings rate worth mentioning) if they hadn't geared monetary policy precisely towards propping up bad companies (especially financial) and exporters. As a consequence of failure to have real reform where it matters most (monetary policy), Japan has made itself much more vulnerable to the US-induced global economic shock.

But I guess you aren't supposed to say such things in polite conversation.

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