Introduction
Two major economic problems are shadowing Asian economies. On the one hand, the
United States' (US) economy, dominant in the world economy, is doomed to fall into a
recession. Whether the recession in the US will be largely confined to the region or will affect
the global economy, including Asian countries, is an important issue.
On the other hand, the recent fuel and food price increase, a global shock in nature, will also
influence most Asian economies that are heavily dependent on oil imports. Because the
manufacturing sector (much of which uses oils as a crucial intermediate) is still the engine of
growth in most emerging Asian countries, the impact of the oil price hike is expected to be
deep in Asia. If these increases continue, emerging Asian countries will face a serious
dilemma between fighting inflation and maintaining high growth.
How business cycles of one country affect the business cycles of other countries has been
widely investigated in both academic and policy circles. In addition, since the oil price shock
of the early 1970s, studies of the impact of oil price increases on the economy have
centered on macroeconomic analyses. By summarizing the recent studies on these issues,
in this short paper I will try to address how Asian economies specifically are challenged by
these important developments in the world economy. I will also identify policy issues faced
by policymakers in Asia.
The paper is organized as follows. In section 2, issues related to the US economy's
slowdown are discussed; in particular, I will focus on decoupling issues, i.e., whether the
Asian economies can continues to thrive despite of the slowdown in the US. In section 3, I
will discuss issues related to another imminent shock coming from the recent oil price hike.
Section 4 briefly concludes the paper.
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The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.
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