US dollar power giving rise to 'illusions'

Chief Economist David Carbon
Chief Economist David Carbon

The torrent of bad news from the region about sinking currencies and flagging exports is not a sign of a crisis but more "illusions" created by the strong US dollar, DBS chief economist David Carbon told a media briefing yesterday.

Asian currencies and exports are usually measured against the greenback, which can be misleading, given the dollar's relative strength, he said. "Currencies (and exports) haven't been tanking, it's the dollar which has been soaring," he noted.

When Asian currencies and exports are, instead, measured against a broader basket comprising the US dollar, the euro and the yen, they are "swimming down the middle" and have held steady over the past year.


Asia is not falling into an abyss. It's not doing great, but it's not doing badly either.

CHIEF ECONOMIST DAVID CARBON, on how economic data can be misread due to the soaring US dollar

Asia today "looks nothing like Asia in 1997" during the financial crisis, he added. For instance, many countries in the region now have large current account surpluses, unlike in the run-up to the crisis two decades ago when many were running deficits.

"Asia is not falling into an abyss. It's not doing great, but it's not doing badly either."

Mr Carbon also said too much attention has been paid to short-term gyrations in China and not enough to the country's long-term restructuring plans.

Weaker-than-forecast Chinese manufacturing data caused a global stock-market rout last month and raised concerns that China might be headed for a crisis.

However, Mr Carbon said, data coming out of the world's second-largest economy points to a "planned slowdown", not a crisis.

The Chinese economy has slowed but the biggest drop came about three years ago in an intentional shift to a more sustainable growth rate, he added.

China is in the process of rebalancing its economy away from investment and towards consumption, and also restructuring from a focus on manufacturing towards services.

Ultimately, it is the success or failure of these structural reforms which will "make or break" China, said Mr Carbon, adding that "this is where the risks and benefits are".

US recovery remains slow and market watchers are still divided over whether the timing is right for a Federal Reserve interest rate hike, he noted.

Inflation in the US continues to fall even though the economy has been recovering, mainly because a lot of slack remains in labour markets, household balance sheets and investment markets, he said.

The Fed will conclude its Federal Open Market Committee meeting later today, and there is no consensus among market watchers on whether a rate hike is likely.

"The data certainly does not say that it's time... Fed officials and markets are unanimous that they will move very gradually," said Mr Carbon, noting that markets have priced in three rate hikes over the next 16 months.

A version of this article appeared in the print edition of The Straits Times on September 17, 2015, with the headline 'US dollar power giving rise to 'illusions''. Print Edition | Subscribe