Asian recovery: Will it be V for victory in emerging east Asia? The Asian Development Bank expects the region to recover quickly in 2010 from its sharp downturn — a V-shaped recovery.
Trade has bounced and domestic growth remains strong. The region’s manufacturing-oriented economies with modest budget deficits may now fare better than the centres of financial meltdown.
In many cases, the region's downturns were harsher in the first quarter of 2009 than those experienced in western economies. For instance, Taiwan’s GDP shrank by 10.2 per cent and Singapore’s by 9.6 per cent in the quarter, compared with a 2.5 per cent decline in the US and 4.9 per cent in Britain.
With the nexus of the financial crisis in the Anglo-Saxon world, that seems at first sight surprising — the ADB estimates that of the $1.5 trillion of global financial sector write-downs since September 2008, only $35 billion were in east Asia. But east Asia suffered a different kind of collapse. Exports tumbled around 30 per cent throughout the region.
Trade has now recovered significantly, and east Asian stock markets have risen by around 70 per cent. Most regional economies are expected to post positive growth in the second quarter and to continue doing so thereafter.
While the downturn has pushed the region's budget deficits higher, only Malaysia’s is expected to be above 5 per cent of GDP in 2009. Short-term interest rates are mostly still appreciably positive, and real bond yields substantially above inflation — except in China.
Some worries over China’s financial sector aside, little appears to prevent the region from resuming growth based on domestic strength and an improving, if not stellar, export picture.
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That contrasts with the US and the UK, where record budget deficits and sharply negative real interest rates are set to stunt future growth. The economic drag from correcting expansive and potentially inflationary monetary policies and servicing massive government debt burdens may cause growth to remain at best subdued for years.
So the ADB’s prognosis sounds reasonable. East Asia suffered more severely than western countries from the recent recession. With less financial sector drag, they could well lead the way out with a relatively rapid V-shaped recovery.
