Feeble dollar, surging euro benefit Asia

SHANGHAI, China — Asia knows all too well the power of currency markets to wreak havoc on regional economies — the upheavals of the Asian financial crisis of the late 1990s ensured that.

This time around, currency speculators are bestowing a windfall on Asia, as exports made cheaper by the weakening U.S. dollar surge, and rattling Europe, as euro-denominated exports become ever more costly, possibly imperiling fragile, export-led recoveries.

For China, Malaysia and Hong Kong — and many other Asian countries whose currencies are more loosely linked to the greenback — a cheaper dollar is adding fuel to an already sizzling export boom.

“Overall, the strong euro means that all Asia benefits. Everybody gains against the euro, and Asian goods are cheaper and have more penetration in European markets,” says Jonathan Anderson, economist at UBS AG in Hong Kong.

It’s too early for the euro’s surge to show up in data on trade between Asia and Europe. But evidence of Asia’s worldwide gains from the dollar’s longer term slide is plentiful.

In 2003, East Asia saw its strongest exports in 16 years, with combined exports of China, Taiwan and South Korea jumping 25.6 percent, thanks largely to robust consumer demand in the United States.

In its most recent forecasts, the Asian Development Bank cited strong export growth as a boon for the Philippines, Taiwan, Singapore, India, Thailand and Vietnam.

How different from seven years ago, when speculative attacks against the Thai baht, and a soaring U.S. dollar, triggered a sudden financial crisis.

The euro “shock” has been much more gradual. The currency, launched in 1999, is now about 58 percent above its all-time low of 82 U.S. cents in October 2000. But as the currency has strengthened, export growth for the euro zone has begun to taper off.

Growth in the 12-nation zone slowed sharply in the third quarter, led by weaker-than-expected results for France and Germany, the region’s leading economies, prompting European leaders to call for help in stanching the euro’s surge against the greenback.

In a globalized world, trade and currency fluctuations are never a complete win-lose situation. European exporters with factories in China and elsewhere in Asia with U.S. dollar-denominated exports are benefiting from the dollar’s dive, as are U.S. exporters.

And not all of Asia is profiting from the gyrations in world currency markets. The dollar has also weakened to multiyear lows against Japan’s yen and South Korea’s won, making their exports to the United States more expensive.

Meanwhile, higher oil prices and uncertainties over demand for high-tech electronics products are eating into currency-related export gains.

Although the tie to the weakening dollar has helped Asia this time around, many in the region argue that China and other countries should take the opportunity now, while their economies are booming, to loosen ties to the dollar.

“Pegged currencies have a bad track record,” said Philip Wee, senior market strategist at DBS Economic Market Research in Singapore. “Now would be a relatively easy time to make a change. Who knows what will happen in five years’ time?”