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Asian Economic Growth: Mixed Picture |
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Written by Philip Bowring
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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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Economics/Business 
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