Is Asia on a different planet?
While China and India experienced sharp slowdowns in late 2008 and early 2009, numerous other Asian countries were hit by
a big downturn in activity. Compared to pre-crisis levels, GDP contracted 6% in Singapore, 10% in Taiwan and 5% in South
Korea, with even sharper declines in exports and industrial production. The ensuing recovery has been just as impressive.
Most of these countries regained or surpassed pre-crisis levels in H2 2009 or by Q1 2010 at the latest. Obviously, this
contrasts sharply with the trends observed in the advanced economies. In the United States, the UK and the Eurozone, after
six months of recovery in late 2009, GDP was still down 2.2%, 5.5% and 4.7%, respectively from previous peak levels.
The latest IMF forecast released in April 2010 calls for economic growth of 5.2% in the advanced Asian countries (the four
dragons), 10% in China and 8.8% in India.
In Q1, South Korean GDP was up 7.8% year-on-year, and industrial production rose 22.1% in March from the year-earlier
period. In Thailand, manufacturing production increased at a record pace of 32.6% and exports rose 41%. Singapore’s very
volatile economy reported annualised GDP growth of 32.1% in Q1 (13.1% year-on-year). In China, Q1 GDP reached 11.9%
year-on-year with exports up 28.7%, investment up 26.5% and retail sales up 18%. Growth is expected to reach 10% this
year. In India, GDP growth is estimated at nearly 9%.
Under these conditions, economic policies are unsurprisingly focusing mainly on avoiding an upsurge in inflation. China is
worried about reining in rampant credit distribution, which is fuelling real estate bubbles in the big cities. It has raised
mandatory reserve rates for banks and cutback credit distribution. India has already raised its key policy rate and is expected
to continue tightening monetary policy in the months ahead. Other countries are expected to follow.
China also wants to stimulate revenues in an effort to rebalance the components of domestic demand. From this respect, it is
worth noting that Chinese consumption accounts for only 36% of GDP, vs an average of 55% in the advanced economies and
over 70% in the United States. The only way to lower the savings rate, currently at 38%, would be to reform the healthcare
and pension systems. Efforts are underway to rebalance the situation, as illustrated by foreign trade’s relatively small
contribution to growth, since the boom in exports is counterbalanced by very strong import growth. China reported a net trade
deficit in March.
While China and India experienced sharp slowdowns in late 2008 and early 2009, numerous other Asian countries were hit by
a big downturn in activity. Compared to pre-crisis levels, GDP contracted 6% in Singapore, 10% in Taiwan and 5% in South
Korea, with even sharper declines in exports and industrial production. The ensuing recovery has been just as impressive.
Most of these countries regained or surpassed pre-crisis levels in H2 2009 or by Q1 2010 at the latest. Obviously, this
contrasts sharply with the trends observed in the advanced economies. In the United States, the UK and the Eurozone, after
six months of recovery in late 2009, GDP was still down 2.2%, 5.5% and 4.7%, respectively from previous peak levels.
The latest IMF forecast released in April 2010 calls for economic growth of 5.2% in the advanced Asian countries (the four
dragons), 10% in China and 8.8% in India.
In Q1, South Korean GDP was up 7.8% year-on-year, and industrial production rose 22.1% in March from the year-earlier
period. In Thailand, manufacturing production increased at a record pace of 32.6% and exports rose 41%. Singapore’s very
volatile economy reported annualised GDP growth of 32.1% in Q1 (13.1% year-on-year). In China, Q1 GDP reached 11.9%
year-on-year with exports up 28.7%, investment up 26.5% and retail sales up 18%. Growth is expected to reach 10% this
year. In India, GDP growth is estimated at nearly 9%.
Under these conditions, economic policies are unsurprisingly focusing mainly on avoiding an upsurge in inflation. China is
worried about reining in rampant credit distribution, which is fuelling real estate bubbles in the big cities. It has raised
mandatory reserve rates for banks and cutback credit distribution. India has already raised its key policy rate and is expected
to continue tightening monetary policy in the months ahead. Other countries are expected to follow.
China also wants to stimulate revenues in an effort to rebalance the components of domestic demand. From this respect, it is
worth noting that Chinese consumption accounts for only 36% of GDP, vs an average of 55% in the advanced economies and
over 70% in the United States. The only way to lower the savings rate, currently at 38%, would be to reform the healthcare
and pension systems. Efforts are underway to rebalance the situation, as illustrated by foreign trade’s relatively small
contribution to growth, since the boom in exports is counterbalanced by very strong import growth. China reported a net trade
deficit in March.
