Tag: GDP

Update: Japan-EU Deal

Comprising around 30 percent of international GDP, Japan and Europe are ready to enter into an agreement which would establish “an economic mega-bloc” between the two regions.  This not only sends a message to Washington that the two entities are committed to free trade and an open economy, but also that this will have a substantial impact on the international economic environment.

Talks for the collaboration have been going on since March 2013. There have definitely been some obstacles slowing it down, but now things are moving much faster, most notably since Trump took office with concerns of the impact of trade protectionism on worldwide trade as well as Japan and Europe’s economies.

Finally last month – on July 7 in Hamburg – a deal was signed at the G20 summit.  And what this means is that 91 percent of EU exports to Japan (and 75 percent of Japanese exports to the EU) became tariff-free vis-à-vis trade volume.  Within the next decade-and-a-half it is anticipated that both shares will reach 99 percent and tariffs for the rest of the products will slowly decrease.

The key points of the deal are the compromise agreements reached on the major food, machinery and other products. Japan’s import tariffs for cheese, currently as high as 29.8 per cent, were effectively the biggest stumbling block at the talks, but finally a solution was found. Japan will import a fixed amount of European soft cheese at a new low tariff rate, reduced to zero in 15 years. Tariffs for hard cheese like cheddar are to be abolished in 15 years without setting quotas.

As Japan’s Prime Minister Shinzo Abe said, this deal will likely result in “the world’s largest free, advanced, industrialized economic zone.”

Asia’s Economic Success: In Spite of Europe’s Mess

In recent years, although other eastern markets have failed to thrive in debt-ridden European environments, Asia has not been one of them.  The region has not encountered nearly as much strife as its neighbors and in fact on the contrary, has enjoyed impressive financial growth.  For western businessmen therefore, Asia fares pretty high on the list of possible potential addresses due to less red tape; stable investment opportunities and higher interest rates, especially in countries like Indonesia. 

Indeed, Indonesia’s GDP increased by almost 6.50 percent last year which is the highest since the Asian crisis began (and way better than neighboring China and India) and it does not need to depend on global trade flows for success either. Its population is large and growing and its youth has minimal debt and thus greater spending capacity and it offers a huge variety of commodities, being self-sufficient in oil and gas.

Oil Issues

So that’s great for Indonesia. But is this the case throughout the region?  Do all eastern markets have so much to offer potential western investors?  Perhaps not. Looking at oil prices that are increasing at uncontrollable rapid speeds, Asia’s growth could be shot in the food, making it a rather unattractive place for western businessmen to lay their hats.

In addition, since Asia does not stand alone, both the western world and indeed the global community at large, needs to understand that it will be impacted as well.  Should its growth be stumped, this will have a domino effect on Europe and won’t do any favors for America’s recession recovery either.  As Tweeter FirstpostMarketsLive noted, “Asia is largest consumer of oil having surpassed North America in 2007 to account for more than 31% of world demand.”

Asia’s economic conglomerates are concerned.  Nomura, a multinational conglomerate offering financial services has been taking a stand on the potentially problematic matter.  The company’s chief economic advisor, David Resler noted, even though there isn’t as great a threat to a resumption of the financial crisis, this oil price mega increase at the beginning of the year has replaced that threat in as great a severity.

So ultimately there is a lot of optimism out there for potential western investors into Asia.  But should the oil price increase crisis not be solved, it could be downhill for not only the entire region, but potentially the whole world.  Asia needs to sort this out, and fast.