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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