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Policymakers searching for an economic engine to drive the recovery are looking beyond the U.S. consumer and toward rebounding economies in Asia.
“While risks to the economic outlook certainly remain, Asia appears to be leading the global recovery,” Federal Reserve chairman Ben Bernanke said Monday at a Fed-sponsored conference in Santa Barbara, Calif. Last month, Bernanke said the U.S. recession was “very likely” over, but the poor job market would make the economy feel weak for a lengthy period.
Bernanke also warned Monday that the trade imbalances with Asia, which have improved as U.S. consumers save more and Asian consumers spend more, could reassert themselves as the economy perks up and trade volumes rebound.
Stock markets extended their gains on Monday. The S&P Retail Index rose 1.1 percent, or 4.42 points, to 397.45 and the Dow Jones Industrial Average advanced 1 percent, or 96.28 points, to 10,092.19 — a new high for the year. The Hang Seng Index climbed 1.2 percent in Hong Kong, but the Nikkei 225 dipped 0.2 percent in Tokyo.
Although the Asian economies joined the U.S. in economic contraction in the fourth quarter and early this year, the region grew at an annual rate of 9 percent in the second quarter, with double-digit jumps in China, Hong Kong, South Korea, Malaysia, Singapore and Taiwan, Bernanke said.
That helps makes Asia a better candidate to lead the recovery than the U.S. consumer, who helped fuel growth and kept Asian factories humming earlier in the decade, but has reprioritized over the last year in favor of saving over spending.
“The Asian recovery to date has been in significant part the result of growth in domestic demand, supported by fiscal and monetary policies, rather than of growth in demand from trading partners outside the region,” Bernanke said.
The financial crisis has helped nudge the U.S. and China toward what economists have long said would be a healthier balance. To keep that balance, consumers in Asia, particularly the 1.3 billion people in China, will have to continue to spend.
“To achieve balanced and sustainable growth, the authorities in surplus countries, including most Asian economies, must act to narrow the gap between saving and investment and to raise domestic demand,” Bernanke said. “In large part, such actions should focus on boosting consumption.”
That puts the Fed and brands from Fendi to the Gap on the same page. China is seen as a huge consumer market ready to take off. Last week, Gap Inc. said it would ramp up its international expansion and open its first store in China next fall. Gap chairman and chief executive officer Glenn Murphy noted no American apparel brand had a strong presence in China.