How are the Asian economies coping with this crisis?
Introduction:
Graph: Asia in the crisis
The ongoing financial crisis is said to be a global one, that's to say that born in the USA, it has an effect all over the world, in every important economic regions. Asian economies are known to rely especially on export and trade: they share a high degree of openness, making them responsive to the fluctuation of the global economy. Then this global crisis naturally affected them and contributed to a dramatic fall of their production and of their GDP. However, even though Asia was hit by the crisis, we witness in 2009 several signs of premature rebound, quite astounding compared to the rest of the world and to its economic history.
Asia underwent a crisis, external to its functioning. But a crisis isn't necessarily something purely coming from outside. A crisis hurts the structure of an economy and reveals what is wrong in the system and what is not sustainable. Something from the exterior shows what has to change in the interior. That's why we should be careful with the Asian rebound. Is this rebound followed by a recovery, that's to say something sustainable.
That's why quite logically, we have to ask and examine how the Asian economies are currently coping with this crisis. This question has mainly two way to be answered:
What are the tool used in Asia to fight against the crisis?
Is Asia really getting off this crisis or are some factor showing the the question of recovery is far for being solved?
Are the Asian economies weathering the crisis well or not?
Conclusion:
I) Common features to fight the crisis: the noticeable Asian rebound
A)A quick and early rebound from the Asian economies...
FIG 1-6: the V-shape rebound of the Asian economies
The main characteristic of the Asian economies is there openness to international trade, selling low value to high value added product. This openness to trade made them really dependent on the USA demand, that constituted ¼ of Asia export value added. Finally, it was a drawback since they were hit extremely hard by the crisis, when this demand appeared to be subdued. The sectors particularly hit were the manufacturing sector and of course, export. However, surprisingly enough 2009 appears early as a year of rebound for Asia (show the figure of rebound) Export and production began to increase again, financial pressure are lower and finally the confidence concerning saving is going on the way to recover. The Electronic sector, harshly hit by the crisis, was finally one of the driver of this recovery. The V shape structure showed on the graph seems quite relevant to show that Asia in 2009 is living a rebound. It's then the first region to live such a situation, showing that aggressive countercyclical measures have been undertaken to prevent a too long collapse.
B)...Due to reactive fiscal and monetary policies...
Graph: Effectiveness of fiscal and monetary policies
What are the main driver of this relative return to growth? Asian governments are the main actors in this process, implementing monetary policies and fiscal policies, that are considered as economic stimulus, to influence aggregate demand and supply and finally reflate the economic growth.
1)A monetary policy is usually implemented by a central bank that increase the money supply to favour directly Investment by decreasing the interest rate. Monetary policies are here to reduce the inflationary pressures ongoing by creating liquidity to fight inflation. They proved to be very helpful to induce this recovery Asia seems to lead. For example, it has been a substantial help for China, Taiwan, Hong-Kong or Singapore state enterprises or PME to help them to maintain production or to maintain there own stimulus.
2)Fiscal policies: can be defined as choices made by the government about the overall level of government purchases or taxes. This can lead to the direct delivery of fiscal stimulus packages. Boosting domestic consumption and investment, as well as financing infrastructure has been the goal of these fiscal policies launch in Asia to cope with the crisis. Most of the countries finally delivered more fiscal stimulus than they planned. Among these stimulus, there are tax cuts, representing 1/6 of the stimulus packages (FIG 37). In Korea or in Indonesia, they particularly reduce personal income taxes and corporate income taxes. Spending in infrastructure was also a great deal for the governments, especially in China. Targeted and untargeted social transfers (that's to say school feeding or support for housing for instant) were also set up in countries like China, Indonesia, Korea, the Philippines or Thailand. The Asian governements has been very responsive to the crisis by intervening quickly and efficiently, in a way Keynes would kind of be proud of.
3) Exchange rate and currency appreciation rigor policy was also to be maintain
C) Helping firms and people to weather well the crisis.
Permit to support domestic financial markets to help SME to access to credit.
Households and firms are widely help to face the crisis.
Employment rise again: need for worker on the Chinese coastal cities
Finally, Asia seems to cope pretty well with the crisis, thanks to quick policy answering and good reaction from the firms and the households.
II) Balancing the Asian rebound: illusion and deep rooted crisis
However, this common Asian rebound hides some illusion and stakes that can't be forgotten. Coping with the crisis is something that remains difficult, even in Asia.
A) China: the tree hides the forest
Graph: DOC 3 p°30
As the World Bank report says, “Take China out of the equation, and the rest of the region is recovering with less rigour”. Indeed, China, thanks to its tremendous and continuous economic growth drives the statistics up but hide the real difficulties that the other economies face to cope with the crisis. Without China, the GDP growth would have been beneath South Asia, the Middle East and hardly a bit higher than Sub Saharan Africa. That's to say that at a national level, it seems that the road to recovery is far for being reach. They are following their own path and still facing their own problem, different regarding their constitution. High income or middle income economies don't cope with the crisis the same way that the low income economies such as Mongolia and Cambodia. China hides the forest of a region that still struggle to cope with the financial crisis.
B) Japan and the illusion of the Green shot due to policy reactivity
Graph: History of Japanese green shoots
Also about the so-called rebound is that it could be called a Green shoot. A green shoot is a period of prosperity following a crisis, that can be implemented thanks to the policies we've mentioned previously. Japan, the 2nd largest economy, has been undergoing a chronic crisis since the 1990's, alternating period of green shoots to come back a few year after in another set of crisis. Currently, Japan
-Japan, the 2nd largest economy, is in a mess that existed before the crisis, and shows with its history that green shoots due to policies and rebound are not the root to recovery, infering the need for structural reforms, especially in the banking system.
Toyota first restructuring.
C) Overall poverty is increasing in Asia
-Eventhough firms and corporate are going much better, and the activiy and employement are on their way, poverty will increase in Asia, direct consequence of this crisis.
A real social and poverty impact of the crisis 14 Million people who could have get out 2$ a day poverty in 2010. 60 million people would have been lifted above the income poverty line if growth had continued remained trap in absolute poverty.
Unemployement not unsolve, from highly develop to low income economies.
>>Coping well but the solutions used can be con
III)From the rebound to a recovery: issues and prospects?
A)Structural fragilities and issues to take into account
The balance must be done between growth based on exchange and growth based on domestic demand, much more reliable (but more protectionnist). To boost domestic consumption. Some may review their fundamentals.
Stimulus packages can create a double dip that is not sustainable in the long run.
Government tried to prevent the too quick withdrawal of stimulus
B) No Asian model but different ways to deal with the crisis
The recovery varies among countries:
-Japan and export oriented Asia: output remained well below potential
-China: investment remaining the motors of its expansion
-Low income country> lower impact cause not that exposed
C)Coping with the crisis by developing regional development
Favoring exchange among the region and developing regional cooperation to cope with the crisis. ASEA, Japan complementarity
