Depression's Ghost Hovers Over Asia: Deflation
Asia's hopes of a quick recovery from market turmoil are clouded by an economic storm little seen since the Great Depression, a downward price spiral that is ravaging the region's economies.</br></br>The storm is deflation, or falling prices. Deflation has short-term advantages -- helping keep consumer prices down, for example, or reducing Asia's real-estate and stock-market bubbles. But prolonged deflation can drag an economy to a halt, and some economists fear Asia has entered the worst deflationary period since the 1930s.</br></br>"There's a risk of an Asian recession that becomes a world recession," says Chen Zhao, editor of China Analyst, who follows Asian price trends. "Asia is big enough now to influence world prices, and the direction is down."</br></br>Federal Reserve Chairman Alan Greenspan doesn't see deflation hitting the U.S., saying that "it is inflation, not deflation, which is the crucial element which serves as the major threat to this expansion."</br></br>How far prices fall will determine whether the current economic slump ends up looking like a speed bump or a brick wall on the road to prosperity. So far, deflation in tradable goods has contributed to Japan's economic problems, China and South Korea's sagging growth, Southeast Asia's currency devaluations, and Hong Kong's stock-market panic, economists say.