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>The Asia-Pacific Economies: How far from the pre-crisis potential?
KEY MESSAGES: ■ Asian economies are spearheading the global recovery with their stronger than-expected rebound in growth. Fiscal and monetary stimulus has played a crucial role in this rebound.
■ Some economies such as Australia have benefited from the strong trade-linkages with China, whose own recovery has been underpinned by massive fiscal stimulus.
■ Significant output loss in 2008 and 2009 imply that none of the countries in the next couple of years would attain the output level, had they continued to grow at the rate witnessed in the pre-crisis period.
■ In the Asia-Pacific region, Indonesia and Australia have been least affected by the crisis, and their economies are likely to rebound close to the pre-crisis output potential by 2011.
■ The Indian economy would not be able to reach the potential size it may have achieved had it not been hit by the meltdown; the estimated output loss due to the crisis would be around 8 per cent of the pre-crisis potential GDP by 2011.
■ Out of the Newly Industrialsed Economies (NIEs), three economies - Singapore, Hong Kong and Taiwan - would witness the maximum output loss to GDP in 2011; consequently, their recovery to pre-crisis levels will be delayed.
After having suffered the worst recession since World-War II, which was intensified by the Lehman burst in October 2008, economies across the world are slowly and steadily marching their way towards recovery. There has been discernable improvement in the global economy in the second half of 2009, underpinned by output expansion in emerging market economies, particularly in Asia. World manufacturing activity has picked up, trade is recovering, financial market conditions are improving, and risk appetite is returning. As a result The International Monetary Fund (IMF) has been upgrading the growth outlook for the global economy. It now expects the global economy to shrink by 1.06 per cent in 2009 (IMF, October 2009), as compared to its earlier estimate of a contraction of 1.4 per cent (IMF, July 2009), before expanding by 3.5 per cent in 2010 (Figure 1).
The critical question is - with a recovery underway, which countries would bounce back to their pre-crisis potential? In other words, we assess, over the next couple of years which countries would (or would not) be able to compensate for loss in economic output as a result of the crisis. This is our focal issue in this paper.
The paper is divided into two broad sections. The first section analyses the role played by expansionary fiscal and monetary policies in the rebound of Asian economies by examining the drivers of recovery in domestic as well as external demand. The second section addresses the crucial question of the likelihood of economies in the region reverting to their potential size of the economy by comparing the pre-crisis trend and expected economic growth rates over the next couple of years. The analysis has been presented for the 13 Asia- Pacific economies (APAC economies, henceforth), namely, Australia, New Zealand, Japan (bucketed under industrial Asia), Singapore, Hong Kong, Korea, Taiwan (the Newly Industrialsed Economies, NIEs), Malaysia, Indonesia, Thailand, Philippines, Vietnam (the ASEAN-5 economies), and finally, India. China has been excluded from the analysis because of non-availability of relevant GDP data.
To read the full report: ASIA-PACIFIC ECONOMIES
