Asia could kick off global meltdown: Economists

Asia could kick off global meltdown: Economists

SINGAPORE (Reuters): Asia's economic crises could result in a global recession as early as next year if Japan does not recover, economists at the East Asia Economic Summit said on Monday.

They said that while Asia's fundamentals were strong -- stable macro-economics, emphasis on skill upgrading, strong infrastructure and high savings rates -- the region's recovery was locked to Japan's.

"We are at a critical juncture," Kenneth Courtis, chief economist and strategist at Deutsche Bank Group Asia Pacific, Japan told the summit conference, sponsored by the Geneva-based World Economic Forum (WEF).

"In sector after sector, we have major problems brewing...All sectors have excess supplies," Courtis said.

"I think the biggest risk is Japan. If it doesn't get its act together, Japan will become the Titanic that pulls the rest of Asia along with it," Courtis said.

Courtis said as the world's second largest economy, an ailing Japan which was contracting at a three to four percent rate could result in a global meltdown.

"It is the world's leading savings nation, the world's biggest creditor. If it goes into financial implosion then it becomes very difficult to see how we can avoid a global meltdown," Courtis said.

"There is no way to stabilize Asia without stabilizing Japan and there's no way to stabilize the world's economy without stabilizing Asia," he said.

In order to stabilize Japan, especially its beleaguered banking sector, the government needed to recapitalize all its banks, ailing or otherwise, immediately, Richard Koo, chief economist at Japan's Nomura Research Institute said.

Koo said the Japanese government did not have the time to select the good or the bad banks for recapitalizing as this would take up to five years, and the economy did not have that much time.

Some officials felt Asia's high savings rate and export-led growth focus could be detrimental in the face of a global economic slowdown, notably in the United States.

"Every country is focussing on an export-led growth except one. That is the United States who's buying," Clyde Prestowitz, President of the Economic Strategy Institute in the United States told the conference.

"We need demand consumption apart from the United States," he said.

Prestowitz said if Japan remained ill, Asia recession worsens, the U.S. stock market falls and U.S. consumption declined, a global recession could hit as early as next year.

"The only way to pre-empt that pressure (for a global meltdown) is to get growth in the global economy and that's going to take about six months to get the machine going again," Courtis said.

Ulrich Cartellieri, a board member of Deutscje Bank told the meeting that Asian countries must move faster to restructure their financial systems because there is a now a risk of the region's crisis spilling over into the rest of the world.

"Financial restructuring is a battle against time and in this battle, there are only two types of soldiers, the quick and the dead," Cartellieri added.

"Unfortunately, the risk now is that the external environment will deteriorate," he said. "Against this scenario the urgency to get on with financial restructuring becomes even greater."

Cartellieri said the speed at which crisis-hit Asian countries were restructuring their debt was "disappointing" and in fact, their total debt had increased since the end of last year.