Devaluation renders exports more competitive, thus substituting external demand for the domestic demand that is being compressed.

Historically, the US was modern Asia s largest source of external demand.

But if external demand lags, products accumulate, prices decline, and profits fall.

China s GDP growth fell dramatically, owing to the collapse of external demand.

It moves economic growth away from a dangerous over reliance on external demand, while shifting support to untapped internal demand.

The impact on growth will almost certainly be negative, even if domestic demand compensates fully for the decline in external demand.

In the end, internal demand is the only effective defense against external vulnerability.

Willingness to tackle inflation is impeded by Asia s heavy reliance on exports and external demand.

The bad news is that Asia seems to be learning little from repeated external demand shocks.

Despite all the talk about the coming shift to internal demand, China remains heavily dependent on exports and external demand as major drivers of economic growth.

They have to cut wages, pensions, and other costs in order to achieve the same gain in competitiveness needed to substitute external demand for internal demand.

The driving force is external demand, as Germany, the world s second largest exporter, profits from the global boom.

Rebalancing also involves a global demand switch from external deficit countries to those running large current account surpluses.

Reducing dependence on external demand for example, by promoting private sector investment and encouraging household expenditure is crucial.

For the second time in less than four years, Asia is being hit with a major external demand shock.

External demand in the second half of 2011 is unlikely to be strong, owing to the shaky global recovery.

As such, this what if is a cautiously optimistic assessment of the downside risks stemming from weak external demand.

Today, by contrast, although domestic investment is growing very strongly, external demand has not recovered to its previous levels.

Even though its fiscal and external accounts are strong, Germany has resisted calls for boosting its domestic demand further.

Demand is therefore being drained out of the eurozone economies, with stronger external demand, stemming from the euro s depreciation against other major currencies, unable to offset the effect on growth.

The 70 30 split underscores the challenge the US must face up to a fundamental rebalancing weaning itself from excessive reliance on internal demand and drawing greater support from external demand.

It also means getting the balance between domestic and external demand right, and appreciating the sensitivity of medium and long term growth to the composition (and size) of domestic aggregate demand.

To be sure, developing countries differed often markedly in their capacity for fiscal stimulus to counter the loss of external demand.

But the increasing external demand continues to drive production and undermine the creation of sustainable and competitive alternative means of livelihood.

After the global economic crisis weakened external demand, which sustained China s unprecedented economic growth for three decades, the authorities agreed that internal demand, especially domestic consumption, must become the country s new growth engine.

But will this do enough to stem the slowdown in an economy that has become hooked on external demand in recent years?

And yet reliance on external demand remains fundamentally unchanged, even as the contribution of net exports to GDP growth has turned negative.

Somewhat faster demand growth in Germany and a lower external surplus would help not only Germany s trade partners, but also German savers.

With favourable external conditions in 2004, economic policy in the region focused on demand management and on development with weaker financial constraints.

With domestic aggregate demand in short supply, the only functioning growth engine, external trade in goods and services, is not an employment engine.

It is necessary because persistently weak global growth is unlikely to provide the solid external demand for Chinese exports that it once did.

Faced with sluggish external demand, weak domestic consumption, rising labor costs, and low productivity, China depends excessively on investment to drive economic growth.

But now growth rates for Chinese exports and related indices in manufacturing have fallen, largely owing to weak external demand, especially in Europe.

Such figures have led many observers to believe that overall domestic demand must be low, leaving China dependent on external markets for growth.

The standard way to buffer the effects of austerity is to marry domestic cuts to devaluation of the currency. Devaluation renders exports more competitive, thus substituting external demand for the domestic demand that is being compressed.

But internal European Union studies indicate that European exports are more closely linked to changes in external demand than the euro dollar exchange rate.

America needs to expand its share in external global demand, which requires public sector investment, structural change, and improved competitiveness in the tradable sector.

Moreover, there is an important and worrisome twist to those linkages China itself has tilted increasingly toward Europe as its major source of external demand.

Indeed, China s dilemma is emblematic of one of developing Asia s greatest challenges the need to tilt the growth model away from external toward internal demand.

But, if all countries simultaneously attempt to improve their fiscal or external balances by cutting spending and raising taxes, all will fail, because each country s austerity implies less demand for other countries output, in turn perpetuating both domestic and external imbalances.

A shift to external demand is not there for the asking. It must be earned by hard work, sheer determination, and a long overdue competitive revival.

Weak external demand is partly responsible for the falloff in growth, but internal factors namely, slowing investment and stagnating consumption are also holding back economic expansion.

The post crisis era is likely to be characterized by lasting aftershocks in the developed world undermining the external demand upon which China has long relied.

Governments role will be different in countries like China, where officials will guide a shift from dependence on external sources of growth to more balanced demand.

Economic growth is expected to moderate in 2005 in all three countries if the external environment weakens and uncertainty remains about the sustainability of domestic demand.