BNP Paribas economist questions Asian deflation concerns

Andrew Freris refutes US and European claims that Asia is exporting deflation to the world.

BNP Paribas' Asia Pacific chief economist yesterday (Tuesday) dismissed claims that the region has a major problem with deflation and warned Asian central banks not to cave in to outside pressure to revalue their currencies.

Speaking at a press conference held at the Island Shangri La Hotel in Hong Kong, Freris said that concerns about deflation in the United States, Europe and Japan has led central banks in those countries to direct some of the blame at undervalued Asian currencies, particularly the Rmb.

According to Freris, even though the US is not currently experiencing deflation, the Federal Reserve is keen to avoid further downward pressure on prices. There is a growing perception that Asian currencies and consequently exports are too cheap to the extent that it is having a serious effect on growth in the economies that import those goods.

Freris however dismisses claims that Asia is 'exporting deflation to the world'. With the exception of Hong Kong, which has been experiencing deflation for the past 55 months, and brief periods of deflation in Taiwan, China and Singapore, there has been no persistent deflationary problem in the region.

BNP's economist feels the role of supposedly cheap exports, particularly from China, has been overplayed by central banks in the US, Japan and Europe. China currently accounts for 4.7% of total global exports; a figure not sufficient enough to have a massive influence on prices in other markets.

It seems evident that developed countries outside Asia are concerned about losing competitiveness as exporters, which could explain why Asian central banks are being put under pressure from outside to appreciate their currencies. But Freris believes that Asian countries should not be coerced into making policy changes that could have far reaching consequences.