By David Ferguson
Decisive and collective action will be key to the success of Asian countries in defending themselves from the impact of the global economic slowdown.
This was the message from Jong-Wha Lee, Head of the Office of Regional Economic Integration (OREI) of the Asian Development Bank (ADB), in response to a new report from the Bank indicating a slowdown in economic growth in developing Asia. As the impact of the global financial crisis spreads to emerging markets, growth will slow to 5.8% in 2009, down from a probable 6.9% this year and 9% in 2007.
With the global economy facing a major downturn, the region's economic resilience will be tested by weakening exports and a sharp slowdown of private capital flows, according to the December issue of Asia Economic Monitor (AEM).
"2009 is likely to be a difficult year for developing Asia but it will be manageable if countries respond decisively and collectively," said Lee.
The message will strike a chord in China and in the ASEAN (Association of South East Asia Nations). At the recent China-ASEAN Trade Expo and Business Summit held in Nanning, Guanxi, in October, there was clear understanding of the expected economic turbulence. Eminent speakers, including some of the most senior politicians from the participating nations, repeatedly emphasized the need for common action, but the mood was in general assertive and positive rather than pessimistic. Even then, widespread support was apparent for Lee's current analysis: "Swift action by policymakers to stem both the threat to the financial systems and the real economy will allow most of the region's economies to sustain a healthy if slower expansion."
Economic growth in emerging East Asia - defined as ASEAN, plus the People's Republic of China (PRC), Hong Kong, Chinese Taipei, and the Republic of Korea - will slow to 5.7% in 2009 down from 6.9% in 2008. Growth in the PRC itself, the region's engine, is expected to moderate to 8.2% in 2009 from 9.5% in 2008 even as the government has undertaken aggressive measures, with the injection of 4 trillion yuan (US $600 billion) into the economy to spur domestic demand in order to offset a slowdown in exports and private investment growth.
The AEM says that supporting this growth momentum in domestic demand is key to keeping the regional economy in relatively good shape amid a weakening external environment. But further clouding the outlook is the prospect of a deeper, more prolonged global recession creating persistent stress on the region's financial systems.
"The risks to the region's growth outlook are strongly tied to the global outlook through both trade and financial links," says Dr. Lee. "Further financial disruption could also exert a significant influence on consumer and investor confidence in the region."
While the region's economies and financial systems are fundamentally sound and appear better cushioned to withstand the immediate effects of the crisis than other parts of the world, the report notes with concern that the global credit crunch is now simmering in the domestic banking systems, squeezing funding resources for corporate investment, and could boil over in some key regional economies if left unaddressed. If banks in the region become more risk averse, the report warns, monetary policy may have less traction than in the past and governments will have to develop more active fiscal responses to shore up domestic demand.
The most dynamic economy in South Asia in recent years, India, is facing similar problems. The country is seriously concerned by the probable impact of the global financial crisis on its banking systems and financial markets, and the impact on its economic performance will be almost identical - the growth projection for India has been revised down to 7% in 2008 and 6.5% in 2009, falling from 9% in 2007. These figures are reflected in the forecasts for the whole of South Asia, which follow a similar trend to India but are slightly lower.
The AEM urges policymakers throughout the Asian region to move swiftly to reduce the risk of a regional credit crunch, and provides a number of specific recommendations. These include: increased monitoring of local financial markets; clear policies in place in advance to deal with stressed institutions; adequate provision of foreign and domestic liquidity so that credit continues to flow into the economy.
A further recommendation to the region's authorities concerns improvements in the regulation, control, and monitoring of financial systems. The five key objectives here are: (a) to strengthen transparency and accountability, (b) to enhance prudent management and effective review, (c) to mitigate the impact of extremes in financial market cycles, (d) to extend the range and depth of financial markets in order to enhance their resilience to economic turbulence, and (e) to reinforce cross-border cooperation.
Read Developing Asia's Prospects in the Global Slowdown.
(China.org.cn December 11, 2008)
