The economic news out of Asia just keeps getting better. With GDP figures for the second quarter rolling in, it is now predicted that emerging Asia will grow by more than five percent this year, compared to a contraction of 3.5 percent in the Group of Seven rich countries. So much for Asia waiting for the recession to end in America – the decoupling debate is alive and well.
The cover story of this week’s Economist details Asia’s remarkable rebound. “Asia’s rebound has several causes. First, manufacturing accounts for a big part of several local economies, and industries such as cars and electronics are highly cyclical: output drops sharply in a downturn and then spurts in the upturn. Second, the region’s decline in exports in late 2008 was exacerbated by the freezing up of global trade finance, which is now flowing again. Third, and most important, domestic spending has bounced back because the fiscal stimulus in the region was bigger and worked faster than in the West. India aside, the Asians entered this downturn with far healthier government finances than rich countries, allowing them to spend more money.”
The Economist also argues that “if anything, the crisis has reinforced the shift of economic power from the West to the East.” The increase in spending by consumers in emerging Asia will offset the fall in the United States and the euro area and help rebalance the world economy. Still, “Asia cannot replace the American consumer: emerging Asia’s total consumption amounts to only two-fifths of America’s.”
While some are wondering if Asia will be able to sustain its recovery without creating asset bubbles, it may be unwise to underestimate the Asian tigers.
Illustration by Bill Butcher and graphs from The Economist.
