How deep East Asia has been hit by the current finanzial crisis and how the economies in the area have managed to react is the subject of a research developed by Wendy Dobson, University of Toronto, Canada, and published by the East Asia Forum, a a platform for the best in East Asian analysis, research and policy comment on the Asia-Pacific region and world affairs.
Findings of the paper are taht East Asian economies were relatively well insulated against the financial impacts of the global financial crisis. Their objective dependence on trade through regional production networks and export-led growth strategies, though, made them vulnerable to the sharp contraction of demand from the North American and European economies. As a consequence, the International Monetary Fund projects sharp real GDP declines in 2009 for all countries in this area.
Most hit is Singapore (-10 per cent), with Japan’s economy shrinking by -6.2 per cent, Taiwan’s by -7.5 per cent, South Korea’s by -4 per cent. China is the outlier, with positive growth expected to be 6.5 per cent. Even so, China has experienced a huge growth contraction from 13 per cent in 2007. Japan was hardest hit by the contraction of export markets: its current account surplus is expected to shrink from 4.8 per cent of GDP in 2007 to 1.5 per cent in 2009. China’s will shrink slightly but Korea’s and Taiwan’s will expand.
There is a strong reaction in the region to this revealed vulnerability. Governments are asking how they can reduce their dependence on exports to the advanced industrial economies and rely more on regional and domestic demand. This reasoning leads to an emphasis on alternative growth engines in the region (such as potentially large demand in China and India) and on ways to deepen the linkages among the region’s economies. Unexpectedly, the G20 leaders’ summits organized on an ad hoc basis to manage the financial crisis may turn out to be the catalyst for a sharper focus on deeper regional integration. Six Asian economies are members, the three Northeast Asians plus Australia, India and Indonesia, and each is an equal at the global table. This new ‘definition’ of the six as equals in global strategy could be the basis for a more strategic approach to trade and finance in the region that replaces current ad hoc arrangements.