Asia Is Leading Global Recovery, Says ADB

Sources:
The Financial Times: Asia to Lead Global Growth, Says ADB
The New York Times: Asia Rebounding Rapidly, Bank Reports
ADB: Asia Needs Broader Openness for Economic Resilience, Says ADB

Developing Asian economies are more resilient to the global crisis and will grow stronger than expected, according to the Asian Development Bank. The bank, in its recent report, the Asian Development Outlook 2009 Update, raised its 2009 growth forecast for developing Asia to 3.9 per cent in 2009, from 3.4 per cent predicted in March. The bank also upgraded its growth forecast for China to 8.2 per cent in 2009, 1.2 percentage points higher than its forecast in March and 8.9 per cent in 2010.

The report says that Asia has been rebounding quickly as the governments’ stimulus programs such as tax cuts and greater public spending boosted domestic consumption and investment. Also, the relatively healthy status of commercial banks in the region with strong balance sheets underpinned the improved growth prospects. However, the report warns that “hasty withdrawal” of fiscal and monetary stimulus and “any slippage” in the major global economies’ recovery would impede the regions’ rebound.

To further strengthen Asia’s economic resilience and reduce its vulnerability to external shocks in a globalizing world, the bank says Asia needs balanced openness to international trade. Although the region successfully recovered from the 1997-98 Asian Financial Crisis, the recovery came “at the expense of an over-reliance on external demand from outside the region,” said ADB Chief Economist Jong-Wha Lee. While reducing the risk of excessive capital inflows, the region has more heavily relied on extra-regional demand, and the current global crisis exposed Asia to the risk of unbalanced trade openness. The report points out that the current financial crisis spread to Asia mainly through the collapse of demand in major global markets. In order to have more geographically balanced openness, the bank calls for strengthening intra-regional trade by stimulating domestic economies, eliminating trade barriers, and enhancing regional cooperation.

Discussion Questions
1. What are other options to bring more balanced openness to trade in Asia in addition to facilitating intra-regional trade? Should Asian countries consider loosening their governmental intervention in currency markets?
2. Asia’s rapid rebound seems to revive the notion of “decoupling.” Given that Asian countries were also hit hard by the global financial crisis, how persuasive is the decoupling concept?