I was wrong.
Asia has decoupled. The above influences have proven so disastrous that their economies are not only slowing along with the rest of the world, but they are crashing at a faster pace than the west. Consider the following:
China: Up to 26 Million Migrant Workers Now Jobless
As many as 26 million migrant workers are unemployed as China's exporters reel from effects of the global economic slowdown, a top rural affairs official said Monday, noting that widespread unemployment could threaten the country's social stability.
The figures were announced one day after Beijing warned of "possibly the toughest year" since the turn of the century, calling for development of agriculture and rural areas to offset the economic fallout. Though many Chinese cities have seen double-digit growth in recent years, the countryside has lagged far behind, forcing peasants to seek urban factory jobs churning out goods that are sold around the world.
But a recent government survey showed that slightly more than 15 percent of China's estimated 130 million migrant workers have returned to their hometowns and are now unemployed, said Chen Xiwen, director of the Central Rural Work Leading Group, a central government advisory body. Another 5 or 6 million new migrants enter the work force each year, he added.
Keep in mind, this is just a number tabulating migrant workers. It says nothing about regular city dwellers losing their jobs.
Regardless, the number is unreliable and keeps growing by the day. On Sunday, premier Wen Jiabao estimated a total of 12 million. By monday, the number grew to 20 million. Now we're at 26 million. Does anyone really know? And if they did, would the Communist Party of China tell us? I think not. But clearly, the situation is spiraling out of control. Millions of single, middle-aged men out of work. I don't think we've heard the end of this story.
As I stated in my 2009 Macro Outlook, I am expecting contraction in Chinese GDP this year. I haven't seen any mainstream analyst give projections under 5% growth. This will be yet one more example of them missing the mark completely. 2010 could see even further contraction (I'm thinking double digits). Consider the following chart that shows electrical output (dotted line) compared with GDP (solid line). Can you guess where GDP is headed?
The situation in Japan is worse. Far worse.
We learned last Friday that industrial output fell 9.6% in December. That is not year over year. That is compared to November. At first I saw this number and thought that it had to be a mistake. No industrial based economy can contract like that. Well, it is happening in Japan. The year over year number is closer to 21% and if what the major industrial companies have been telling us is correct, that number is already over 30% through January - with more to come. What's more, is that these numbers really only started declining late this summer. We're talking a drop of 1/3 in only 6 months. That is unheard of. Wait, let me put that in bold: That is unheard of. It has never happened before in a major industrial nation.
I've been bullish on the Yen for the last few years, as much of its government debt flowed overseas and eventually needed to come back home. I'm not sure if that is done yet, but if I were a holder of Yen, I would be thinking of the broader social/political implications of this crisis and consider selling. The Japanese are very interventionist, and the chances of them doing something incredibly stupid rises every day. I wouldn't want to be caught on the receiving end of something like that. The risk/reward has shifted as far as I'm concerned.
So with Asia's two biggest economies literally falling to pieces, inquiring minds might wonder what is happening on that little peninsula in between - Korea.
Well, things are falling apart rapidly there also. Exports, which represent 1/3 of the South Korean economy, fell by 32.8% in January compared to last year. Doing some advanced mathematics, we can figure that the Korean economy is losing 10% of it's GDP in exports alone.
Apparently, while politicians in the west are arguing at the dinner table about the size of the next stimulus package, Asia is choking on a chicken bone and turning blue.
Like clockwork, never turning down an opportunity to stir the pot, North Korea is preparing to test-fire a missile toward Japan. Now wouldn't that serve as a mighty convenient distraction from economic woes? Japan and South Korea were far more willing to talk with the North and give them economic aid so as to preserve stability in the region while their economies were humming along. That could all change as social mood darkens, unemployment rises and nationalistic fervor is easily stoked.