Asian stocks struggle as economies hit by slowing exports to U.S.

HONG KONG -- Battered by a blast of bad news from Wall Street last week, Asian financial markets are reeling from plenty of homegrown problems, too.

Across the region, stocks were having a bad year even before the collapse of Lehman Brothers, the fire sale of Merrill Lynch and the bailout of American International Group. From Seoul to Singapore, the economic and political troubles are piling up.

Economies are slowing. The Asian Development Bank, a Manila-based development agency, recently predicted that economic growth in East Asia would slow from a torrid 9.6% pace last year to 8% this year and 7.7% in 2009.

Moody's Economy.com forecasts slowing growth this year in every Asian country except Thailand. The wealthy city-state Singapore will see economic growth brake to 4.2% this year from 7.5% last year.

Even in booming China, growth will slow to 9.5% this year from 11.6% last year, Moody's forecasts. Japan and New Zealand will be lucky to "narrowly escape" recessions this year, Moody's analyst Sherman Chan predicts.

Behind the slowdown: weakening exports to the powerful but stalling U.S., European and Japanese markets. Singapore, for instance, reported that electronics exports dropped more than 14% in July from a year earlier.

The Asian economic slowdown has killed the notion, popular in recent years, that Asia's economic fortunes were no longer intimately intertwined with the U.S. and European markets, says Ifzal Ali, the Asian Development Bank's chief economist: "Uncoupling is a myth," he says. "If the global slowdown extends beyond 2009, the repercussions for the region could be severe."

And the worst is yet to come, Moody's Chan predicts. Through the first half of this year, China was still sucking in supplies from the rest of Asia to manufacture products for the U.S. and European markets. "When China scales back demand for manufacturing inputs in the second half of the year," she writes, "the rest of Asia will feel the full weight of the global slowdown."

Inflation is simmering. The Asian Development Bank predicts that prices will rise 7.8% this year, up from its estimate earlier this year of 5.1%. And the bank foresees double-digit inflation in Cambodia, Indonesia, Laos, Vietnam and the Philippines.