Apr 14th 2009
From Economist.com
East Asia has been hard-hit by the global economic slowdown
EAST ASIA was once one of the world economy's brightest regions. Some even reckoned that “decoupling” might allow the region to ride out the storm that began in rich-country financial markets. But the global economic crisis is hitting the East Asia hard. The World Bank's forecasts for economic growth have been downgraded steeply. Excluding China, which will announce first quarter GDP figures later this week, the bank now expects developing countries in the region to grow by 1.2% in 2009, down from an estimate of 4.8% in 2008. Some economies will even contract this year. The bank predicts that the GDP of Malaysia and Cambodia will shrink by 1% and Thailand’s economy will shrivel by 2.7%.
This is a return to earth with an alarming bump. In 2007 Cambodia’s economy expanded by 10.2% and Malaysia’s by 6.3%. Other economies will grow, but at nothing like the pace of recent years. China's economy is likely to expand by 6.5% in 2009 compared with 13% in 2007. The Philippines will see growth of 1.9% this year, compared with 7.2% in 2007.
The World Bank points out that most countries in East Asia were relatively well placed to withstand the financial turmoil that has swept through developed countries. This is partly a result of learning the lessons of a financial crisis of 1997-98, which originated in the region. They have used the decade since then to build up reserves of foreign currency and strengthen external balances (which, in part, helped to finance the West’s spendthrift ways and hasten the crisis). They have also reduced government debt and strengthened bank regulation.
However, some of these changes were aided by a boost in exports, both within the region and to the rest of the world. But heightened integration with global markets through trade has exposed the region to the effects of the recession in rich countries. This has led to a dramatic fall in exports that has battered regional economies. In fact, the World Bank reckons that the effects of the crisis have been more severe in countries most open to trade and whose exports are concentrated in particular industries such as electronics, garments and textiles.
The drop-off in trade has been dramatic the world over, but parts of East Asia have felt the pain more than most. In January, Taiwan and the Philippines saw the value of exports plummet by over 40% compared with a year earlier. Electronics, which account for a quarter to two-thirds of exports from most of the larger economies in the region, have been hard hit.
Poorer countries in the region, whose export sectors are dominated by garments and commodities, have been hurt badly too. Cambodia, the country most dependent on garments, endured a 31% fall in exports in January compared with a year ago. As the World Bank puts it, the region, which prospered through exporting, is now suffering for the same reason.
The collapse in exports is leading to a jobs crisis, though this is not necessarily reflected in official figures. Less-developed countries in the region have a greater share of employment in the informal export sector. This makes it harder to obtain reliable data. But reports suggest huge job losses. In Cambodia 50,000 garment workers, 17% of the workforce in the industry, have been laid off since September. In Vietnam, 100,000 garment workers lost their jobs in January and February. And in China some 2.7m garment industry job may have gone.
Years of rapid growth have allowed the richer countries in the region the room to use monetary and fiscal policy to contain the crisis. Some countries, notably China, Malaysia and South Korea, have announced substantial stimulus packages, including big spending on infrastructure. However, Indonesia and the Philippines have to rely more on tax cuts than on public spending, partly because “shovel-ready” projects are lacking. Monetary policy has been eased in all the countries of the region.
Some good news exists. The bank's assessment is that China’s fiscal stimulus (amounting to spending worth around 12% of GDP spread over two years) is beginning to take effect. The bank predicts that the Chinese economy will bottom out by the middle of the year. The fortunes of other economies in the region are tied up with those of China. Many export parts and components that are then assembled in China for re-export. But the Chinese stimulus package cannot hope to fix the problem of contracting demand for the region's output in the rest of the world. The bank points out that a more complete bounce back from the economic crisis still depends on a broader worldwide recovery.
From Economist.com
East Asia has been hard-hit by the global economic slowdown
EAST ASIA was once one of the world economy's brightest regions. Some even reckoned that “decoupling” might allow the region to ride out the storm that began in rich-country financial markets. But the global economic crisis is hitting the East Asia hard. The World Bank's forecasts for economic growth have been downgraded steeply. Excluding China, which will announce first quarter GDP figures later this week, the bank now expects developing countries in the region to grow by 1.2% in 2009, down from an estimate of 4.8% in 2008. Some economies will even contract this year. The bank predicts that the GDP of Malaysia and Cambodia will shrink by 1% and Thailand’s economy will shrivel by 2.7%.
This is a return to earth with an alarming bump. In 2007 Cambodia’s economy expanded by 10.2% and Malaysia’s by 6.3%. Other economies will grow, but at nothing like the pace of recent years. China's economy is likely to expand by 6.5% in 2009 compared with 13% in 2007. The Philippines will see growth of 1.9% this year, compared with 7.2% in 2007.
The World Bank points out that most countries in East Asia were relatively well placed to withstand the financial turmoil that has swept through developed countries. This is partly a result of learning the lessons of a financial crisis of 1997-98, which originated in the region. They have used the decade since then to build up reserves of foreign currency and strengthen external balances (which, in part, helped to finance the West’s spendthrift ways and hasten the crisis). They have also reduced government debt and strengthened bank regulation.
However, some of these changes were aided by a boost in exports, both within the region and to the rest of the world. But heightened integration with global markets through trade has exposed the region to the effects of the recession in rich countries. This has led to a dramatic fall in exports that has battered regional economies. In fact, the World Bank reckons that the effects of the crisis have been more severe in countries most open to trade and whose exports are concentrated in particular industries such as electronics, garments and textiles.
The drop-off in trade has been dramatic the world over, but parts of East Asia have felt the pain more than most. In January, Taiwan and the Philippines saw the value of exports plummet by over 40% compared with a year earlier. Electronics, which account for a quarter to two-thirds of exports from most of the larger economies in the region, have been hard hit.
Poorer countries in the region, whose export sectors are dominated by garments and commodities, have been hurt badly too. Cambodia, the country most dependent on garments, endured a 31% fall in exports in January compared with a year ago. As the World Bank puts it, the region, which prospered through exporting, is now suffering for the same reason.
The collapse in exports is leading to a jobs crisis, though this is not necessarily reflected in official figures. Less-developed countries in the region have a greater share of employment in the informal export sector. This makes it harder to obtain reliable data. But reports suggest huge job losses. In Cambodia 50,000 garment workers, 17% of the workforce in the industry, have been laid off since September. In Vietnam, 100,000 garment workers lost their jobs in January and February. And in China some 2.7m garment industry job may have gone.
Years of rapid growth have allowed the richer countries in the region the room to use monetary and fiscal policy to contain the crisis. Some countries, notably China, Malaysia and South Korea, have announced substantial stimulus packages, including big spending on infrastructure. However, Indonesia and the Philippines have to rely more on tax cuts than on public spending, partly because “shovel-ready” projects are lacking. Monetary policy has been eased in all the countries of the region.
Some good news exists. The bank's assessment is that China’s fiscal stimulus (amounting to spending worth around 12% of GDP spread over two years) is beginning to take effect. The bank predicts that the Chinese economy will bottom out by the middle of the year. The fortunes of other economies in the region are tied up with those of China. Many export parts and components that are then assembled in China for re-export. But the Chinese stimulus package cannot hope to fix the problem of contracting demand for the region's output in the rest of the world. The bank points out that a more complete bounce back from the economic crisis still depends on a broader worldwide recovery.
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