The Asian Currency Crises Essay Research Paper — страница 3

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prices are being slashed up to $3000, and in the high tech sector prices of computer chips tumbled more that 60% last year. Massive increases in productivity is one of the only reasons the sector is performing relatively well. Rapid price deflation in assets such as real estate or equities could have severe repercussions on the economy, and the government does not have the weapon of higher interest rates handy to cool the market. Previously, it was thought that the new engine of the world economy would lie in the billions of consumers in Asia. Now it appears that these consumers face certain financial hardship, and political uncertainty. One effect from the Asian crisis that Canadian consumers can anticipate is a wave of cheaper Asian goods. Many economists expect the comparative

strength of the U.S. dollar and efforts by some struggling Asian companies to raise cash with bargain sales to result in cheaper imports on Canadian soil. “There is no question that is what they will try to do, suggests Bank of Montreal chief economist Tim O’Neill. For most Asian companies that is the only option they’ve got”. However, any flood of cheaper Asian goods is at least three months away as exporters in places such as South Korea and Indonesia reorganize themselves and work through their existing inventories. Furthermore, the fall in import prices will keep domestic competitive pressures strong. Canadian companies that compete with Asian imports will be forced to reduce prices to maintain their market share. The situation will be amplified by over-capacity of

Asian corporations in many consumer product sectors. One example is the automotive industry where two South Korean automakers are getting set to target Canada. These two companies are faced with massive excess capacity in their home markets. Canadian industry sources predict South Korean vehicle sales to drop to less than one million (compared with the industry’s capacity of more than six million). With their home market collapsing, these companies are forced to make a push into North America as a way of garnering incremental volume increases at no great additional cost. This type of situation is beneficial for the consumer as it creates more competition pushing prices downward. However, it does foster worries for Canadian exporters as the increased competition could spur U.S.

protectionism. “If the United States moves to shelter its markets, Canada could suffer collateral damage”. There are different opinions about what is going to happen to the Canadian economy as a result of the Asian currency crises. While most agree that the troubled countries will try and export their way out of the crisis, there are differing views on what the prices of their goods will be like. Some believe that because the productive capacity of Asian countries are incredible, the labour rates are low and the Asian worker is willing to work hard for a low wage, that everything produced in Asia will be drastically cheaper that anywhere else. This means that all goods exported to North America could be sold at impossibly low prices. Others believe that Asian countries will

want to make profits with their exports to make up for their losses at home, and therefore they will not significantly lower their prices even though they can produce them at a lower cost. However it is more likely that their only way out of the crisis is to viciously export and sell everything they produce at the lowest possible price. This is good news for Canadian consumers but not good news for the Canadian producers or the Canadian economy. It will be some time before Canadian consumers see any cheaper imported goods due to the fact that most of the goods in stores right now were contracted before the decline in the Asian currency took place. While most sectors have an inventory turn over 3 or 4 times a year, the fashion industry turns over their inventory 5 or 6 times a

year; therefore, the first people to benefit may be the buyers of low to medium priced clothing produced by Asian’s large textile industry. Investors Outlook The Asian currency crisis has affected the choices facing a Canadian investor. This crisis has had both detrimental and beneficial effects on domestic and international markets. Individual investors must attempt to maximize the opportunities and minimize the risks which have been created by this ongoing crisis in Asia. Canada’s weak dollar has caused the government to raise interest rates several times over the past few months. However, these interest rate hikes did not halt the slide of our dollar, and it has only recently climbed above seventy cents. Despite repeated predictions and warnings of stifled growth, Canadian