Tag: Asian economies

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What does 2013 hold?

While the Western world has struggled with economic growth for the past 6 years, emerging economies such as China, Brazil and India have recorded some very high rates of growth. Throughout 2012, there were signs that these economies were not going to be the saviour of the global economy that we all thought. But, as we enter 2013, is it these economies that still hold the hope of the West for more positive figures and better economic times?

The article below from BBC News, in particular, considers the year ahead for the Asian economies and what it might mean for the Western world. Although these countries are by no means safeguarded against the impending approach of the US economy to their fiscal cliff or the ongoing eurozone crisis, they have seemed to be more insulated than the rest of the world. A crucial question to consider is whether this will continue. Furthermore, are the growth levels and policies of a country such as China sustainable? Can it continue to record such high growth rates in the face of the global economic situation?

The Japanese economy has been in serious trouble for a couple of decades, but measures to boost growth for this economy are expected. If these do occur, then western economies may feel some of their positive effects. At present, there is a degree of optimism as we enter the New Year, but how long this will last is anybody’s guess. The following articles consider the year ahead.

Asian economies face regional and global challenges BBC News (1/1/13)
Asia faces hard road ahead China Daily, Haruhiko Kuroda and Changyong Rhee (31/12/12)
Asia to continue rise despite US fiscal cliff Economic Times, Sugata Ghosh (1/1/13)
‘3.6% growth’ for global economy next year China Daily, Alvin Foo (28/12/12)
Asian economies surge ahead despite global slowdown Coast Week, Ding Qilin and Hu Junxin (4/1/13)
Global grind The Economist, Robin Bew (21/11/12)

Questions

  1. Why have the Asian economies been more insulated to the global economic conditions over the past few years, in comparison with the Western world?
  2. What challenges will the global economy be facing over the coming year?
  3. What challenges are the Asian economies facing? How different are they from the challenges you identified in question 3?
  4. Why is the rate of exchange an important factor for an economy such as Japan?
  5. What does a low exchange rate for the yen mean for European countries? Is it likely to be seen as a good or bad thing? What about for South Korea? Use a diagram to help you answer this question.
  6. Why is the economic situation in countries such as China and India so important for the rest of the global economy? Use a diagram to illustrate this.
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Asia’s moderate boom

Many developing Asian countries have experienced rapid and yet relatively stable economic growth over a number of years. In other words, this has not been a short-term unsustainable boom associated with the expansionary phase of the business cycle – with aggregate demand expanding more rapidly than aggregate supply. Rather it is the result of a rapid growth in aggregate supply.

Over the period from 2000 to 2011, several Asian countries experienced average annual growth rates of over 4% and some, such as China and India, much more than that, as the following table shows. The table also shows forecasts for the period from 2012 to 2017. The high forecast growth rates are based on a continuing rapid growth in aggregate supply as the countries invest in infrastructure and adopt technologies, many of which have already been developed elsewhere.

Average annual economic growth rates

2000–11 2012–17
China 10.2 8.4
India 7.2 6.3
Lao 7.1 7.9
Vietnam 7.1 6.5
Indonesia 5.2 6.5
Malaysia 5.0 4.9
Philippines 4.7 4.9
Thailand 4.0 5.1

Source: World Economic Outlook Database IMF (October 2012)

But for aggregate supply to continue growing rapidly there must also be a stable growth in aggregate demand. With the recession in the developed world, some of the more open economies of Asia, such as South Korea, Taiwan, Malaysia and Singapore themselves suffered a slowdown or recession as demand for their exports fell. The Malaysian economy, for example, contracted by 1.5% in 2009.

Given the continuing macroeconomic problems in the developed world, many Asian countries are seeing the need to rebalance their economies away from a heavy reliance on exports. China, for example, is putting more emphasis on domestic-led demand growth. Others, such as Indonesia, have already embarked on this route. As The Economist article states:

Household consumption contributed half of the growth of just over 6% Indonesia enjoyed in the year to the third quarter (its eighth consecutive quarter of growth at that pace). Exports have fallen from about 35% of GDP ten years ago to less than a quarter in 2011. Developing Asia’s combined current-account surplus, which reflects its dependence on foreign demand, more than halved from 2008 to 2011 and is expected to fall further this year.

The continuing success story of many developing Asian economies thus lies in a balance of supply-side policies that foster continuing rapid investment and demand-side policies that create a stable monetary and fiscal environment. A crucial question here is whether they can emulate the ‘Great Moderation’ experienced by the Western economies from the mid-1990s to 2007, without creating the conditions for a crash in a few years time – a crash caused by excessive credit and an excessively deregulated financial system that was building up greater and greater systemic risk.

Articles
Asia’s great moderation The Economist (10/11/12)
Asia Seen Nearing End of Slowdown on China Recovery: Economy Bloomberg, Karl Lester M. Yap and Michael J. Munoz (15/11/12)
An Insider’s China M&A Notes: What Economic Slowdown? CFO Innovation, Peter Hall and Yuan Peng, The Valence Group (31/10/12)
Building a stronger Asia The Star (Malaysia), Cecilia Kok (24/11/12)

Data and reports
World Economic Outlook Database IMF (October 2012)
OECD: south-east Asian economic outlook to return to pre-crisis levels Guardian datablog, Nick Mead (18/11/12)
Southeast Asian Economic Outlook 2013, Executive Summary OECD (18/11/12)
Asia Economic Outlook BBVA Research (Q3 2012)

Questions

  1. Why have developing Asian countries experienced much more rapid rates of economic growth than developed countries?
  2. In what ways are the structures of developing Asian economies likely to change in the coming years?
  3. What factors would support their continuing to achieve both rapid and stable economic growth in the coming years?
  4. What factors might prevent them from achieving both rapid and stable economic growth in the coming years?
  5. What structural policies are likely to enhance productivity?
  6. What is the Asean Economic Community? How will this benefit its member countries?