Pesek's View From Asia

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Good morning, everyone. Here's my take on some of the stories driving the debate in politics, finance and social issues across Asia today:

Australia's central bank is expected to do what it's never done before: cut interest ratesduring an election campaign.

Central bankers do their best to avoid major rate moves as the democratic process is unfolding, and Reserve Bank of Australia Governor Glenn Stevens is as savvy as they come. But Stevens faces a much bigger dilemma than appearing to meddle in politics ahead of the just-announced Sept. 7 election: China's slowdown. Australia's resource-heavy economy is dangerously reliant on Chinese demand. As China goes, so will Australia's 2.5 percent growth rate and fast-widening budget deficit. Stevens would be wise to lower the overnight cash rate 25 basis points tomorrow to a record 2.5 percent. The China challenge isn't going away, no matter who wins in September.

South Korea's worst property-market slowdown in almost a decade threatens the outlook of Asia's fourth-biggest economy.

Reviving real-estate markets was a key goal for President Park Geun Hye when she took office in February. In April, Park rolled out a series of tax breaks to spur demand and moved to control housing supply in order to prop up prices. Yet national home prices remain weak -- they were flat or fell for 14 straight months through July. That's precipitating a construction downturn that puts the government's 2.7 percent growth forecast for this year at risk. The combination of weak demand for exports and near-record household debt means Park must work harder to support the economy. Faster, too.

New Zealand's economic outlook is now in question as a milk-powder scare prompts China and Russia to halt imports.

You know you have problems when even China is banning your food. Auckland-based Fonterra Cooperative Group, the world's largest dairy exporter, warned over the weekend that some of its products may contain bacteria that can cause botulism. China, whose own problems with contaminated milk are well-documented, has now banned several of Fonterra's goods. Dairy products make up about a quarter of New Zealand's overseas sales, and China is the country's biggest trading partner. Markets are feeling queasy about the possibility that the ban may drag on: the Kiwi dollar fell as much as 2.4 percent against the greenback Monday.

Bank of Thailand Governor Prasarn Trairatvorakul says political factors may have a short-term impact on foreign exchange market.

It's the politics, stupid. In Asia, investors often find themselves less shocked by reports on gross domestic product, inflation or stock movements than coup attempts, scandals or unpopular legislative maneuvers. Nowhere is that truer than Thailand, where Prime Minister Yingluck Shinawatra risks the country's biggest protests this year with a legislative push that includes an amnesty for jailed supporters and $64 billion of railway investments. In recent years, political stability was the key to Thailand's economic recovery. It may be a thing of the past, though, as protesters take to streets of Bangkok and Prasarn is forced to take to the markets to stabilize the baht.

Does Japan face a U.S.-like fiscal cliff crisis that could imperil its economy?

That's economist Carl Weinberg's working assumption about Prime Minister Shinzo Abe's drive to boost the deflation-wracked economy. ``What people in markets should be talking about is the impact of raising the sales tax rate by 2.5 percentage points in April at the same time fiscal stimulus under Abenomics ends,'' says Weinberg, chief economist at High Frequency Economics in Valhalla, New York. It is indeed looking more and more like a fiscal cliff, and a sizable one-two punch from public policy. Let's hope Abe's team is mulling ways to cushion the economy. Otherwise, Japan's deflation may deepen in the 12 months ahead.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Willie Pesek at wpesek@bloomberg.net