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Asian economies can weather crisis

AFTER the turmoil of 2008, the world is yearning for a period of relative calm, trying to avoid a drastic downturn.

Amidst all the gloom, the dourest estimates for China and India indicate that the two fastest-growing major economies of the 21st century expanded by more than 7 per cent last year and are expected to grow by 5-7 per cent in 2009.

While that level is a shock, compared with previous growth for these high-flying economies, it's still good growth.

Without doubt China, India and other developing markets of Asia, Africa and the Middle East are witnessing a marked slowdown. By the end of 2008, every country in Asia had seen its exports contract. Unlike previous financial setbacks, Asia can't rely this time on exports to the West.

But the best way to describe the reversal in fortunes would be by using the economists' lexicon and term it a cyclical downturn as opposed to the West's ongoing structural slowdown, which is likely to last for several quarters if not years.

Calculations by Standard Chartered's economist Nicholas Kwan show that even if developing Asia's exports to the US, Europe and Japan drop by 30 per cent in 2009, a bigger decline than that seen during the 2001-2002 downturn, it would shave off only about 1.5 per cent from the region's combined GDP. That is nowhere near the GDP slide seen in the Asian financial crisis of 1997-98.

Then there are the variations within the region in terms of exposure to overseas demand - inward-looking economies such as India and Indonesia and even export powerhouses, South Korea and China, are much more dependent on domestic demand than their export-oriented neighbors such as Singapore.

The middle class

The ever-growing middle class of emerging Asia - a group that has saved prodigiously during the boom times - will need to pick up some of the slack left by the withdrawal of Western consumers. The middle class in Asia, excluding Japan, is comprised of more than 250 million people. This is the segment that is willing to pare down savings and take on debt to go on overseas holidays, buy homes and cars, eat out at restaurants and continue to buy luxury goods.

Add to that some 1 billion Chinese and Indians who are increasingly getting wealthy enough to buy motorcycles, televisions and refrigerators, and you have an emerging consumer base that could soon surpass that in the US, the European Union and Japan put together.

Governments and central banks in the region are now trying to stoke consumption by cutting taxes and interest rates, encouraging these savers to spend more. Asian governments are in better shape than those in the West to provide these incentives because of their strong fiscal positions, low debt levels, large foreign exchange reserves, resilient financial systems and falling inflation.

Moreover, economies in the region are today much more integrated thanks to multiple free-trade agreements signed between governments over the past few years, making the region less susceptible to the developed economies in the West than a decade ago.

(The author is Chief Executive Asia for Standard Chartered Bank. Shanghai Daily condensed his article.)


 

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