Asia in 2011 is not looking as good as Asia in 2010. Going by the International Monetary Fund?s projections, Asia in 2012 also will not be very different from 2011.
Despite rallying much better than the US and Europe, economic activity has clearly slowed in the region during the year. The real GDP growth is the best indicator of the slack. From 8.2% in 2010, real GDP growth is expected to reduce by two full percentage points to 6.2% in 2011. The next year is forecast to witness a marginal recovery in regional GDP growth to 6.6%.
Why is GDP growth dipping in Asia? A look across different categories of economies in the region shows the deceleration to be most pronounced in two groups. The first is advanced Asia comprising Japan, Australia and New Zealand. GDP growth for this group is projected to reduce to 1.7% in 2011 from 5.4% in 2010. The deceleration has been primarily on account of Japan, where natural catastrophes would be responsible for producing a negative rate of GDP growth in 2011. Natural disasters (floods and earthquakes) have upset the growth momentum in Australia and New Zealand too. However, both these economies are expected to bounce back next year, along with Japan, where pace of recovery will nonetheless be shaky. Overall GDP growth for the group in 2012 is expected to be double of that projected for 2011.
Along with advanced Asia, growth is dipping sharply for the Newly Industrialised Asian Economies (NIEs) also. Comprising South Korea, Taiwan, Hong Kong and Singapore, this group had recorded a robust GDP growth of 8.4% in 2010. The current year though is expected to see GDP growth dipping to 4.7% for the group and further to 4.5% in 2012. Singapore and Taiwan, which had grown at 14.5% and 10.9%, respectively, last year, are expected to grow by 5.3% and 5.2% in 2011. Hong Kong will be the only economy from the group to record 6% GDP growth while Korean GDP growth is expected to slip below 4%. On the whole, all these economies are experiencing lower economic activities despite having surplus trade balances and moderate inflationary pressures. As mature emerging markets, they are experiencing the adverse effects of a financial contagion affecting global markets following the deepening of the debt crisis in Europe.
Much of the impressive growth in Asia in recent years has been due to the commendable performance of developing Asia. Comprising China, India and the other major economies of Southeast Asia, developing Asia grew by 9.5% in 2010. The group is projected to grow at lower rates of 8.2% in 2011 and 8% in 2012. All the economies are projected to have lower growth during this year as well as the next year. China?s economic growth is forecast to reduce to 9.5% from 10.3%, while India?s growth is tipped to decline to 7.8% from 10.1% last year. The major Southeast Asian economies are also experiencing growth decelerations, with the reductions most pronounced in Thailand and the Philippines. Thailand?s GDP growth is forecast to reduce to 3.5% from 7.8%, and in the Philippines growth is projected to dip from 7.6% to 4.7%. Vietnam, despite maintaining a GDP growth of almost 6% is showing signs of developing serious vulnerabilities as reflected in its high consumer price inflation, widening current account deficit and high unemployment. Interestingly, Indonesia is the only country in Southeast Asia, which is forecast to grow at a rate slightly more than last year?s. From 6.1% in 2010, Indonesian GDP growth is expected to improve to 6.4% in 2011. In this respect, Indonesia is not only an exception in Southeast Asia or developing Asia, but is the only major economy in Asia, which is expected to better its growth of last year.
Asia?s lower growth prospects for 2011 and 2012 have much to do with the growth moderation expected in advanced Asia and the NIEs. As a group, economies of developing Asia are performing much better than their advanced counterparts from the region. Nonetheless, these economies too might encounter difficulties in maintaining growth next year if the mature economies in the region do not pick up. Sluggish growth in these economies will imply lower demand and also lower investments for developing Asia. The region as a whole then might experience a more sober outlook. It is important for the mature economies of the region to ensure revival of economic activity for complementing the same in developing Asia.
The author is a visiting senior research fellow in the Institute of South Asian Studies in the National University of Singapore. These are his personal views
