Business

Saturday June 13, 2009

Asia to lead economic recovery?

By CECILIA KOK


THE slew of encouraging economic data continue to trigger hopes for an earlier-than-expected recovery for the world economy. Even so, economists are putting their bets on different regions to be the one that will lead the recovery process. While it is widely anticipated that it would be Asia, especially China, some US-based economists would beg to differ.

For instance, global strategist of Pointon York Ltd, Roger Nightingale, in a recent television interview argued that the US economy would be the first to shake off recession and return to growth. His argument was based on the fact that the import data of Asian countries, especially China, had remained persistently weak, and these were indicators of sluggish economic activities ahead. He believed the US economy was still the one looking the best at the moment.

However, the weaknesses in the US economy are obvious. A huge fiscal deficit, which could pose a danger to its currency, and a weak financial system that is contaminated with toxic assets, as well as high and rising unemployment rates are some of the major drawbacks to the still-largest economy in the world.

On the other hand, the recent release of gross domestic product (GDP) results for the quarter to March evidently showed that the bright spots were in Asia. For instance, China, India and Indonesia registered relatively strong growth, albeit at a slower pace, at 6.1%, 5.8% and 4.4%, respectively. These countries have large domestic markets, which, helped by their governments’ stimulus measures, had effectively cushioned the effects of declining exports.

Also, the Asian markets have helped Australia post unexpectedly strong export earnings for the quarter to March. This had partially helped Australia become the only developed nation to defy global trends. It averted recession by the skin of its teeth with a GDP growth of 0.4%.

The Asian story is inspiring. Countries in the region have sound financial systems, and their economic fundamentals remain healthy. It was only due to the misdeeds of the other side of the world that their economies are suffering.

But such problems have actually helped pull many Asian countries together. Regional cooperation is being stepped up to achieve economic balance, strength and sustainability.

Bank Negara governor Tan Sri Zeti Akhtar Aziz on Wednesday told the Wall Street Journal that Asian countries were now working more closely together to support each other’s economy.

She believed that the region holds the greatest promise of recovering faster from the global downturn than the rest of the world.

The high level of cooperation among Asian countries is possible because they share relatively similar values and interests. In addition, their proximity with one another provides a convenient flow of information, people, and goods and services within the region. There is also a relatively huge and stable market to tap into.

For instance, the Asean 5 – comprising Vietnam, Indonesia, the Philippines, Malaysia and Thailand – and Singapore, have a combined population of more than 500 million. This forms an attractive single, huge regional market, with high consumption.

In a recent seminar entitled Marketing in Turbulent Times, Dr Philip Kotler said Asia had become a good place for doing business now. He believed that the region, particularly referring to China, India and Asean, would not only rebound faster from the global slowdown, but would also emerge as new market engines for the global economy.

In its latest projection, the International Monetary Fund expects the world economy to contract 1.3% this year and rebound to a growth of 2.4% next year. World Bank, on the other hand, expects the global economy to contract nearly 3% this year before returning to growth territory in 2010.

According to the organisation’s May 2009 report on the regional economic outlook for Asia Pacific, minimal growth of around 1% for this year and 4.3% in 2010 are to be expected. China and India’s GDP are projected to grow 6.5% and 4.5%, respectively, this year, and 7.5% and 5.6% in 2010.

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