The International Monetary Fund (IMF) said this week that the impact of the global economic crisis on Asia has been swifter and faster than for other regions, partly because of Asia’s export dependence and close integration into the global economy.
According to a new IMF report, GDP in emerging Asia, excluding China and India, plummeted by no less than 15% on a seasonally adjusted annualized basis in the last quarter of 2008. The IMF is forecasting an average decline for this category of Asian countries of 2.9% for 2009. The IMF Regional Economy Outlook for Asia and the Pacific, published on May 6 said that in many ways, the severe impact was unexpected.
The report further stated that Asia is far from the epicenter of the crisis, not just geographically but also in the sense that it did not indulge in the financial practices that led to serious problems in advance economies’ banking systems. Moreover, before the crisis the region was in sound macroeconomic shape and thus in a strong position to resist the pressures emanating from advanced economies. However, the impact on Asia has been swifter and sharper in other regions.
The report said the sharp impact of the global economic crisis on Asian economies is explained by the region’s exceptional integration with the global economy. The spillover has been amplified by Asia’s product mix because the region is specialized in sector particularly affected by the global credit crunch.
The IMF said much of Asia relies for its growth engine on high-and medium-technology manufacturing exports, in particular motor vehicles, electronic goods and capital machinery.
The demand for advanced manufacturing has collapsed – Japanese auto exports, for example, have fallen by nearly 70% between September 2008 and March 2009. At the same time, Asia’s financial ties with the rest of world have deepened over the past decade, exposing the region to the forces of global deleveraging.
Overall, the IMF expects growth for Asia to decelerate to 1.3% in 2009 from 5.1% in 2008 and to return to 4.2% - still below potential – in 2010.
According to the report, a key challenge for policymakers in Asia may be the need to rebalance growth away from exports toward domestic demand in order to return to pre-crisis growth rates. Over the longer term, exchange rate appreciation might also help by providing price incentives to shift resources toward production for domestic use and by raising real household income, thereby spurring consumption.
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