With China slowing, exports from the Asian region slumping, 2009 isn’t looking as upbeat as even the World Bank and the Asian Development Bank suggested this week in their latest surveys of the region.
The bank reckons East Asia will account for a third of the world’s economic growth next year; globally it will be feeble, but in the region much stronger than anywhere else.
The World Bank said Asia (ex-Japan) would be the best performing part of a slowing global economy, and that’s still probable, but the 2.2% fall in Chinese exports in November, coming on the top of big falls in Japanese, South Korean and Taiwanese exports reported this week, shows the impact of the slump in demand in the US, Europe and Japan.
Chinese inflation fell, matching similar falls across the region. Figures out yesterday showed consumer price inflation hitting an annual rate of 2.4% in November. That was the slowest rate for almost two years
That was after a rise of 4% in October and a peak earlier in the year of 8.7%. The producer price index was off 2% in the 12 months to last month as well.
Now interest rate cuts are back on the agenda. China will have to produce its fourth cut in three months soon if it’s to shield its economy from a slowdown sharper than that one that’s already underway.
Yesterday the Bank of Korea cut its main rate 1% to the lowest ever as the global economic crisis threatens to push the economy into recession for the first time since the country last got into financial trouble in the Asian crisis of 1998.
The bank set the seven-day repurchase at 3% yesterday, the lowest since the bank began to set a policy rate in 1999.
The cut was more than expected by any of the surveys by Reuters or Bloomberg and economists says it was a pre-emptive similar to the cuts seen by the Reserve Bank of Australia, the NZ central bank, the Bank of England and the European Central Bank over the past six weeks or so.
Yesterday’s rate cut was the fourth in eight weeks. Australia has cut four times as well from September to December.
And Taiwan cut its key rate 0.75% to 2%, It was the biggest cut so far by the Taiwanese central bank.
Taiwan’s central bank had lowered its discount rate on 10-day loans to banks by a total of 0.875% in four moves since September 25.
The island’s economy will sink into a recession this year after contracting in the third quarter for the first time since 2003, according to the government last month.
Exports fell 23.3% in November, the biggest fall for seven years, as shipments to China and the US fell away.
The South Korean economy grew at the slowest pace in four years last quarter as exports dropped and consumer spending stagnated.
The country’s central bank updates its economist forecast for 2008 and 2009 later today and it could be the worst for 11 years, according to local media reports.
The World Bank said this week that East Asia’s economies face “hard times” in 2009 as it cut its growth forecast for the region for next year to 5.3% from the previously estimated 7.4%.
The bank said international trade will shrink next year for the first time in more than 25 years, contracting by 2.1% in volume terms
In its "Global Economic Prospects" report, the World Bank said the global economy would grow by just 0.9% next year.
It said developing countries’ economies would likely expand at an annual pace of 4.5% while developed economies are expected to contract 0.1%.
The latest report is more pessimistic than the bank’s June forecasts of global growth of 3.0% and 6.4% for developing countries.
The bank said China’s growth is projected to slow from 9.4% in 2008 to 7.5% in 2009, but the government’s recently announced $586 billion stimulus program may edge China’s growth back to 8.5% in 2010
"While East Asian countries have entered the current crisis substantially better prepared than they were for the 1997 Asian financial crisis, none have been spared the full fury of the global economic storm, says the World Bank’s latest six-monthly assessment of the East Asia & Pacific region’s economic health."
"In the face of weakening export growth and reduced levels of investment and consumption, the latest East Asia & Pacific Update forecasts that real GDP growth in developing East Asia* will slow to 6.7 percent in 2009 from 8.5 percent in 2008.
"And the GDP growth forecast for East Asia as a whole (that includes all developing economies as well as Korea, Singapore, Hong Kong and Malaysia) will be down to 5.3 percent in 2009 from 7.0 percent this year.
"The report notes that the downside risks to East Asia are substantial in the near term but highlights that countries will be better positioned to deal with the crisis if they are able to maintain macroeconomic stability, shift exports to faster growing regions in the world, substitute external with domestic demand, and continue with structural reforms to strengthen competitiveness."
The World Bank projects that East Asia will contribute about a third of total global growth in 2008.
South Korea has been pumping money into banks, cutting taxes, boosting public spending and slashing borrowing costs to ease the pain of the global financial crisis and now the worldwide slump. The country’s currency has fallen sharply and the stockmarket is down around 40% in 2008
South Korean exports fell more than 20% in November as shipments to China dropped a worrying 28%.
Unemployment is edging higher and is currently at 3.3% (compared with Australia 4.4% in November and the US, 6.7%).
Meanwhile the Asi
