Is it over? Updating global financial crisis
The Regional Economic Outlook: Asia and Pacific published on May 6, 2009 by the IMF estimates that, excluding China and India, the GDP plummeted to 15 per cent on a seasonally adjusted annualized basis in the last quarter of 2008 in emerging Asia (Euro area, USA, Hong Kong, Malaysia, Japan, Singapore, Korea, Thailand, Taiwan Province of China, etc). This shows an average decline of the GDP by 2.9 per cent in Asian countries in 2009. Japan’s auto export, for example, has fallen down by approximately 70 per cent between September 2008 and March 2009. The overall impact on Asia, says IMF, is even swifter and sharper than in other regions. In this area, growth has contracted more sharply in the fourth quarter of 2008 than in the United States or the Euro area. The merchandise exports has fallen at an annualized rate of about 70 per cent in this area between September 2008 and February 2009, which is almost three times more than during the South East Asia currency crisis in the late 1990s.
China, India, and Brazil are set to rebound in 2010 while Europe, the US and Japan lag, writes International Herald Tribune of June 25, 2009. China, which was suspected to be the second epicenter of global financial crisis, is now in a relatively better situation. The OECD projects China’s growth by 7.7 per cent in 2009 and 9.3 in 2010. The notable effort China has made is the massive public investments especially in infrastructure. It encourages future private spending by complementing to the earlier decline in private spending.
In India, the exports of passenger cars, especially Maruti Suzuki, increased by 41.64 per cent in May 2009. Moderate growth, slowing down the outflows of foreign investor’s money and reform in investment environment, has encouraged the Government of India to give clearance to 23 FDI proposals on the recommendation of Foreign Investment Promotion Board. The proposal entails a total FDI inflow worth IRs. 564.80 crore. With regards to the macro developments, especially with an increase in FDI, higher savings and improvement in infrastructure in the share of India in GDP, the Chairman of Morgan Stanley Asia shows his optimism on the Indian economy over that of China.
In South Asia, the reliance of Pakistan, Sri Lanka and Maldives on foreign funding is relatively higher than other countries in the region. This has created macroeconomic difficulties since global crisis limited the sources of foreign funding. Nepal, Bangladesh and Bhutan have underdeveloped financial markets without significant linkages with the global market. These countries have maintained strong macroeconomic management and, therefore, are not affected much from the first round effects but are vulnerable to the second round effects of global crisis on tourism, remittances, infrastructure development and trade. Afghanistan’s case is security and political instability more than economic.
Nepal Rastra Bank’s data shows that Nepal’s total foreign exchange holding as of May 2009 remained at 279.80 billion. Remittance inflow during the same period had reached NPR 149.84 billion (US$ 1.95 billion). The depreciation of Nepalese Rupees against US$ has resulted to NPR 24.49 as unrealized foreign exchange gain. Therefore, in Nepal, the healthy availability of foreign aid and comfortable balance of payments and fiscal situation has saved the country from entering into the danger zone. However, as foreign exchange inflows have been creating some demand pressure, there is a threat to sustain higher inflation rate.
The growth in South Asia as a whole, the World Bank states, ‘…. decelerated in 2008, falling from 8 per cent in 2007 to 6 per cent. It is projected to decline to 5 per cent in 2009, before recovering to 6 per cent in 2010. Although WB lowered its outlook on global growth to a contraction of 3.0 per cent in 2009, the future of 2010 is seen encouraging with the estimates that greater Asia will be economically sound and politically intact as bilateral trade between China and South Asia will exceed $ 75 billion by the end of 2010. Such cooperation in trade may have been the result of market unavailability for Asia in Europe and America because of sustained global recession. Pakistan Daily of June 8, 2009 reports the trade volume is expected to exceed $ 60 billion mark by the end pf 2009. As a result, China’s trade with Bangladesh will reach $ 5 billion, India $ 60 billion, Maldives $ 200 million, Nepal $ 800 million, Pakistan $ 10 billion, and Sri Lanka $ 4 billion.
South Asia immediately before the global crisis had suffered from severe terms of trade shock because of the food crisis and rise in fuel price. The impact of financial crisis is, therefore, difficult to resist for a long time. The crisis is already 18 months old without reliable indications for economic revival. As such, although the picture looks mixed, the priority to safeguard countries from global crackdown is to make massive reforms in the financial sector and increase public sector spending to create jobs and build safety net programs. Based on aforementioned information, the conclusion would be, the crisis will continue, the crisis is over.