Economic growth - Statistical Yearbook for Asia and the Pacific 2011

Statistical Yearbook for Asia and the Pacific 2011

Economy

Economic growth

Data source: UNSD, National Accounts Main Aggregates Database (NAMAD). The World Bank, World Development Indicators.

The global financial crisis in 2008 resulted in negative GDP growth rates in many Asian and Pacific countries in 2009, especially those that depend on exports. The dynamism of low and lower middle income countries buoyed the region and kept the regional average growth positive at 0.5%.

GDP growth

In 2009 the full impact of the 2008 global financial crisis hit Asian and Pacific shores with a dramatic slowdown in GDP growth across subregions and national economies. Growth in the region as a whole declined from 3.1% in 2008 to 0.5% in 2009. Nevertheless the region as a whole sustained positive growth rates with low and lower middle income countries exhibiting an average growth rate of 5.7% and 7.6%, respectively. The upper middle and high income countries, however, saw a decline in GDP of 4.8% and 3.3%, respectively; a contraction that reflected the global impacts of North America and Europe (growth rate of -2.6% and -4.2%, respectively) on more developed countries throughout the world.

Figure III.1 – Index of GDP, world regions, 1990 to 2009

The slowdown across the region was relatively more severe in subregions that depend largely on exports. Commodity prices fell in tandem with the onset of the crisis, reducing growth in major commodity exporters. North and Central Asia had the largest decrease in economic growth; growth fell sharply from 5.7% to -6.5%. The negative growth rate was due to the negative growth in Armenia, Georgia and the Russian Federation, as all other countries in the region had positive growth in 2009. The two other subregions with the lowest growth in 2009 were South-East Asia (with 4.3% growth in 2008 as compared to 1.0% in 2009), and East and North-East Asia (with 2.9% growth in 2008 as compared to 0.5% in 2009). Growth in South and South-West Asia, where economies are largely led by domestic demand, increased slightly from 3.4% to 3.5%. In the Pacific growth increased from 0.8% in 2008 to 2.0% in 2009 (primarily due to an increase in the growth rate of Australia from 1.1% to 2.4%).

Figure III.2 – GDP growth rates, world regions and Asia-Pacific subregions, 2008 to 2009

Countries where domestic demand accounts for a large share of GDP, such as China, India and Indonesia, continued to perform robustly and positively. The Chinese and Indonesian growth showed a slight decline from 9.6% to 9.1% in China, and 6% to 4.5% in Indonesia, while the Indian economy accelerated from 5.1% to 7.7%. China, a major exporter, was cushioned by its relatively high proportion of domestic investment, as well as its Government spending programme, the second largest in the world, together with a sound fiscal position and accumulated reserves. Other Governments in the region also managed to contain the depth of their slowdowns through public spending programmes aimed at employment creation and support of domestic demand. The size of these programmes depended to some extent on fiscal margins available before the crisis.

Value added

Data on the components of production also reflect the impacts of the slowdown. For the exporting subregions, the average growth rate of value added in industry was negative in 2009, reflecting a decline in the production of industrial products and subsequently exported. Growth in North and Central Asia and South-East Asia was negative in value added for industry in 2009, after having been positive for half the prior decade. The growth of industrial value added in East and North-East Asia slowed significantly, from 3.9% in 2008 to 1.7% in 2009. The 2009 slowdown also significantly impacted growth in value added in services in North and Central Asia, South-East Asia and East and North-East Asia.

Investment

The global financial crisis led to significant reductions in investment growth throughout the region. Business outlook was circumspect and funding became scarce during the global credit crunch. The gross domestic investment as a percentage of GDP was reduced across all subregions in Asia and the Pacific. The region thus reflected the general business concerns around the world, contributing to the global contraction in gross domestic investment.

Figure III.3 – Value added by sector, Asia-Pacific subregions, 2009

However, the decline in the Asia-Pacific at 5.8% was less than the global decline of 11% for 2009. Additionally; in 2009, investment rates in Asia and the Pacific were at the level of 29% of GDP as compared to the world average rate of 21% of GDP.

Figure III.4 – Gross domestic investment, Asia-Pacific subregions, 2002 to 2009

Addressing global and subregional imbalances in Asia and the Pacific

Before the global financial crisis began in 2008, many of the world’s economies recorded large trade and current account imbalances among major trading partners. The global imbalances of the 2000s are unlikely to persist or deepen in future. In the medium term, the balance of payments and fiscal imbalances of the United States of America may be corrected to some extent. In such a scenario, when the buoyancy of the markets of the United States of America and other developed countries as a destination for Asian and Pacific exports diminishes, the question for the exporting countries will be how they might sustain their economic growth. An emerging consensus suggests that countries in the region should rely more on domestic and regional markets to support their growth. But what should such reorientation of growth strategy entail? And how should it be implemented?

Asia-Pacific macroeconomic imbalances are not uniform across countries and subregions. Large trade surpluses have played an important role in supporting economic growth in East and South-East Asia, but that does not apply in South Asia. The oft-repeated assertion that a “savings glut” is the main driving force of Asia-Pacific macroeconomic imbalances seems to apply only in East Asia. In both South-East and South Asia, fluctuations in investment have driven net exports to a greater degree than have savings.

Asian and Pacific countries cannot rely on blanket recommendations in addressing their macroeconomic imbalances, such as to increase domestic consumption. How large investment fluctuations impact the imbalances should be understood, so that boom-bust scenarios may be prevented. Appropriate policy responses should be designed with awareness that large trade surpluses are not the only form of macroeconomic imbalance.

The Economic and Social Survey of Asia and the Pacific¹ argues that the need is palpable for a regional financial architecture to facilitate efficient financial intermediation across countries. Such architecture could improve efficiency in preventing crises through options other than accumulating foreign exchange as Asian and Pacific countries have done during the past decade.

¹ Economic and Social Survey of Asia and the Pacific, 2011, Sustaining Dynamism and Inclusive Development: Connectivity in the Region and Productive Capacity in Least Developed Countries, Sales No. E.11.II.F.2