Asian economies recovering fast
24th September 2009
Simon Harding
Asia is making a strong recovery from last winter’s economic slump, reports the Asian Development Bank. Revised growth forecasts for 2009 published by the Bank state that the region’s economic giants, China and India, will grow by 8.2% and 6% respectively, a significant increase on earlier predictions. Overall, countries in the region will grow by an average of 3.9% in 2009, up from the 3.4% expansion expected earlier in the year.
The Asian nations have offset the decline in global demand for their exports by increasing domestic consumption. Banks in China have expanded their lending activities and the Indian government has undertaken a number of large scale public projects, such as the National Rural Employment Guarantee Scheme (NREGS) and the Delhi metro system. However, smaller economies with little scope for increasing domestic demand, like Taiwan, have seen their growth forecasts decline.
Following the regional financial crisis of the late 1990s, many Asian banks became more cautious with lending. A decade of conservative business practices means that their balance sheets are strong and not badly exposed to the current financial crisis which originated in the US.
Asia’s strong recovery has sparked debates about economic development in the region becoming less defined by growth in the West, a phenomenon known as ‘de-coupling’. But, Ajay Kapur, Chief Strategist at Mirae Asset Securities, disagrees. He believes growth in Asia and the West as still correlated, but the swings are becoming larger. ‘Economies tied to global trade fell harder in the crisis and are bouncing back with more vigour,’ he said, ‘this is the opposite of decoupling.’
Indeed, Chief Economist at the Asia Development Bank, Jong-wha Lee, says that the current crisis highlights Asia’s reliance on global demand for its exports. Asian countries need to reduce this dependence by stimulating domestic demand. Encouraging long-term foreign investment is also a priority, said Mr Lee.
Long term foreign investment must be a priority because the fear of volatile capital flows drives Asian nations to build heavily export-orientated economies as a means to stockpile foreign currency. These export-dominated economies are especially vulnerable to fluctuations in global demand.
Mr. Lee’s recommendations are being echoed by Gordon Brown in the run up to the G20 summit in Pittsburgh, which starts on Thursday. Mr Brown talked about nurturing Chinese domestic demand in order to correct imbalances in the global economy. Asia, in particularly China, must be a ‘new motor for growth’, explained the Prime Minister. The current pattern, in which China produces and accumulates a large surplus and the US consumes and sinks into debt, cannot continue.
Boosting domestic demand would help insulate Asia from global financial shocks and may go some way to creating a more balanced post-recession economy.
Also see: ‘Asia rebounding rapidly, Bank reports’, Keith Bradsher, New York Times. Available at: http://www.nytimes.com/2009/09/22/business/global/22yuan.html?ref=global-home