Emerging Asia is once again surprising the world with the speed of its recovery. The five countries that have reported second-quarter GDP – China, Hong Kong, Indonesia, Singapore and South Korea – grew at an average annualised rate of more than 10%.
Economists were also taken by surprise by positive, if weak, growth in France, Germany and Japan; all three were expected to recover after the US, which is still mired in recession.
What the commentators said
“Forecasters always seem to underestimate the ability of the Asian tigers to rebound from recessions,” said The Economist. In the aftermath of the 1997-1998 crisis, many argued that the region’s success had been a complete sham and that many countries were doomed to a decade of lost growth.
“Instead, the tigers came roaring back.” The recovery after the tech-driven recession of 2001 was also much faster than expected. Now it looks like the same story all over again.
Part of Asia’s recovery is due to improvements elsewhere in the world. Cyclical industries are a big part of many Asian economies; this led to huge falls in output at the end of 2008, but also made for quick recoveries as demand stabilised. The freeze in global trade finance had exacerbated the export plunge; this has now thawed.
But much credit must also go to Asia’s domestic strengths. “India aside, the Asians entered this downturn with far healthier government finances than rich countries, allowing them to spend more money.”
Banks were in better shape than Western counterparts and have been able to continue lending. And households have lower debt burdens, making them more willing to carry on spending.
Indeed, the “relative resilience of consumption has played an important role”, said Standard Chartered; for example, Hong Kong’s rebound came from a revival in private consumption, with only limited recoveries so far in investment and trade.
What happens next?
Unexpected growth is not just happening in emerging Asia. Elsewhere too, the “drumbeat of recovery seems to grow stronger”, with the improvements in France, Germany and Japan, said the FT’s Lex column.
But don’t celebrate too soon. In Japan, there is not yet “a convincing picture of an economy that is on its way to sustainable recovery”; government spending drove the rebound, with business investment and residential construction “still in a swoon”.
France and Germany were buoyed by a “perky contribution from net exports”, which was really the result of falling imports – a sign of weak domestic demand. The global economy is stablising, but recovery outside emerging Asia is likely to be muted, said Capital Economics. Even there, the “heady growth of the second quarter will not be sustained”.
But the growth should be solid enough for central banks to start hiking interest rates across the region over the next year – “well ahead of likely rate moves in the US and Europe”.