regional roundup

Regional Finance Roundup: Is East Asia leading the world out of the crisis?

Given that Asia is now widely seen as leading the world out of the crisis, it is fitting that the role of Asia was more prominently recognized in the global economic system in the recent G20 meeting held in Pittsburgh. Since we last looked in July, the outlook for the emerging markets of East Asia has continued to brighten. The latest regional forecasts come from the Asian Development Bank in its Asian Development Outlook (pdf) published last week. It points to “the rapid turnaround in [Asia’s] largest, less export-dependent economies” and predicts that “the regional economy is now poised to achieve a V-shaped rebound.” These are very positive words indeed! As the graph below shows, the ADB has in fact upgraded its growth forecasts for a number of economies for 2009.

Although the signs are pointing upwards, performance is still mixed in a number of key areas.

This is the latest installment of the regional round-up and it has been a while. However, there has not been much groundbreaking news related to the financial crisis to report, with a few exceptions (more to come later).

We are finally starting to see some positive news around the East Asia and Pacific region, but it is too soon to begin to speak of "green shoots" of economic activity or reaching the bottom of the economic downturn in Asia. Although the Swine flu (one disease originating from animals that did not come from Asia!) and the nervousness about the condition of U.S. banks had a slightly negative impact on financial markets in Asia this past week, the stock markets are still up by about 12% for the year – led by Indonesia (21.6%), Korea (11.8%), and China (9.4%).

In terms of big newsworthy events in Asia, one of the biggest has to be the anti-government protests in Thailand. A relatively small number of protesters dramatically caused the cancellation of an ASEAN+3 meeting held in Pattaya this past weekend where 10 regional heads of state were evacuated. The World Bank President, as well as the head of the IMF and UN, were turned around at the airport in Bangkok. Although the protests around the country have effectively ended after martial law was declared and two protesters died, the damage of this may be longer-lasting. Although a discussion of the politics would be interesting, let's concentrate on the finance-related issues.

I'm sorry it has been a while since the last East Asia & Pacific regional roundup. A lot has happened, so let's get right to it. As usual, the downward trends continue across the region.

Well, the bad news continues across the East Asia and Pacific region. The Financial Times just ran a long article on the "speed and ferocity of the region's economic downturn." The piece highlighted that the fast downturn was a result of Asia's over-reliance on export-led growth over the past decade. This follows the IMF's slashed growth forecasts for the large East Asian economies. It projected only 5.5 percent growth across developing Asia for 2009, which sounds great for most economies these days, but it is way off of the 7.8 percent posted last year.

The IMF is expecting only 6.7 percent growth in China, which is 1.8 percent less than what they forecast only in October. This contrasts sharply with the view of the World Bank's Chief Economist, Justin Lin, who just two weeks ago said he thought China could achieve the target rate of growth – 8 percent – this year because of fiscal stimulus spending.

I’m beginning to sound like a broken record, but the bad news keeps coming on the economies in the region. As the Financial Times just put it, “The Asian Financial Crisis Deepens.” Thus far, the deteriorating economic performance has not appeared to flow through to the financial sector, but it now seems that the banks across the region can not avo

Unfortunately, we start this roundup as we did the last – with more economic bad news. Exports dropped 2.8 percent and imports declined 21 percent in China on annualized basis in December. Also, China reported the first slowdown in growth of its foreign reserves since 1998, although reserves still rose by $45 billion in the fourth quarter of last year to about $1.95 trillion. Debate is also now swirling about rate of China’s economic growth for 2009, and even the central bank governor now is publicly setting expectations that the target rate of 8 percent may not be achievable.

This is the first blog entry of what I hope to be regular updates from the financial sector and related areas across the East Asia and Pacific region. So, let’s see how the New Year began in Asia.

Unfortunately, the bad news keeps coming on the economies in the region in terms of exports and industrial output. Exports and industrial production fell 6.2 percent in Malaysia in November and exports from Thailand fell 18 percent in November. Surveys of consumer confidence, business sentiment, and manufacturers across the region have all shown significant declines.