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Economics/Business Regional Asian Economic Growth: Mixed Picture
Economics/Business Regional Asian Economic Growth: Mixed Picture | Asian Economic Growth: Mixed Picture |
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| Written by Philip Bowring | |
| Friday, 25 September 2009 | |
 After taking out India and China, there's trouble
Asia's economic headline news is good, but the Asian Development Bank's latest Economic Outlook has not shied away from the need for real change in the region if the recovery is to be sustained. The half-year review of forecasts and prospects shows average growth in the region at 3.9 percent, better than the 3.4 percent estimated six months ago when the global outlook was dire. India and China in particular show improvement with growth for 2009 now put at 8.2 percent and 6 percent respectively. However, take these two heavyweights out of the calculation and things are not so good. In Southeast Asia, Malaysian gross domestic product has been downgraded from a -0.2 shrinkage to a -3.1 and Thailand from -2.0 to -3.2. Singapore remains stuck at -5.0 for the year as a whole despite its recent pickup, and Philippine growth comes down to 1.6 percent from 2.5 percent despite massive fiscal stimulus and sustained remittance income. Only prospects for Vietnam and Indonesia have improved with growth raised from 4.3 percent and 4.7 percent respectively. In South Asia, Bangladesh can expect a healthy 5.9 percent, barely down on 2008, but Pakistan's is expected to slow to a feeble 2 percent. In the northeast, Korea is bouncing back well and may now only contract 2 percent rather than 3 percent, but negatives for Taiwan and Hong Kong have both been revised upward. Thus excluding China and India the picture is very mixed. And the same looks to be the case for the 2010 forecast now compared with six months ago. Yes, recovery is in prospect with overall Asian growth revised up from 6.0 percent to 6.4 percent but again the improvement expected from China and India account for most of this. Southeast ,Asia's overall is growth is upgraded only marginally to 4.3 percent. Northeast Asia excluding China will struggle to recover the losses of 2009. Pakistan is expected to continue to struggle with a mere 3 percent growth – compared with the 5.2 percent of steady Bangladesh. Asia as a whole can take comfort from the fact that it is still outperforming the rest of the world and should continue to do so. However, instead of the boosterist sentiment that so often accompanies such reports, the ADB is full of warnings about the future. Although central banks needed to prepare "exit strategies" from current easy money policies, fiscal stimulus should not be hastily removed. ADB president Haruhiko Kuroda warned that Asia has become far too dependent on demand from the major industrial countries, which are unlikely to revive rapidly. Asia, he said, "needs to address the geographically unbalanced structure of its trade, capital flows and movement of workers by promoting closer economic linkages within the region." In other words, domestic demand and regional cooperation are the keys to future sustained growth. That may seem an obvious enough statement but it actually says a lot about regional trade barriers (despite numerous free trade agreements), poor financial linkages, lack of cross border investment, and attitudes to foreign workers – who are mostly from within the region. In particular the report notes that although trade with China has been expanding rapidly, this does not mean that China is in itself an engine of growth for the rest of the region. "The production fragmentation-oriented nature of intra-Asian trade casts serious doubts on the validity of the regional trade-as-engine-of-recovery-and-growth-hypothesis." The report also notes that East and Southeast Asia's share of China's trade has slipped slightly as trade with other non-OECD countries has increased especially rapidly. One problem is that China competes with other Asian countries in third markets. However a bigger problem is that if China's size is to be translated into a regional engine of growth, replacing the old OECD countries, it "depends on the extent to which the PRC's own growth is fuelled by domestic demand rather than exports." That issue in turn looks at another raised by the ADB: the size and disposition of international reserves. It notes that almost every country – not just China – now has sufficient dollar reserves for transactional purposes. Additional funds considered as medium to long term investments are also mostly in US dollars despite concerns about the US fiscal position and long-term growth prospects. Although the ADB has been an active promoter of local currency bond issues, the cross border market remains tiny and Asian central banks are reluctant to invest in each other's paper. Some markets, such as China's, cannot readily be accessed and others are as yet too small. Thus a key component of enhanced regional cooperation and trade stimulus is missing. Although the ADB does not specifically comment on it, there is also something clearly amiss when countries such as the Philippines (modestly) and Malaysia (massively) continue to run current account surpluses for successive years even when their economies are slowing or contracting. To a considerable extent these surpluses are reflected not just in a rise in foreign reserves but in private capital outflows. The ADB might address more directly the issue of why investment prospects are so poor in these countries that so much capital is flowing out, whether to China or the stagnant western countries. As it is, the ADB wants better use of remittance inflows to drive investment rather than consumption but quite how this can be achieved is not certain. Others anyway believe that remittances are better used by recipient families than they would be by government or formal intermediaries and in the Philippines at least have been behind the only bright spot in investment – housing. Prospects for improved regional trade based on regional rather than extra-regional demand are also threatened by protectionism. Hopefully these will prove temporary responses to the shocks of the past year but it may be worrying that, according to the ADB, 78 percent of such measures – mostly anti-dumping and countervailing duty investigations – have been by developing countries and 50 percent by Indian and China combined. Asia otherwise seems to have been relatively free of them. Given all these problems it is perhaps not surprising that the ADB's outlook for 2010 has small to medium trade-oriented countries of Asia performing poorly compared with China, India and Indonesia, and remittance-dependent Bangladesh and Philippines continuing to do relatively well.
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