Memories of 1997-98 are probably sweeping through much of East Asia as the leading economies of the region begin to feel the real pinch of the global financial meltdown. South Korea, one of the epicentres of that crisis a decade ago, but which has had no part to play in precipitating the current crisis, reported a fall in GDP of 3.4% in the quarter ending December 2008 when compared with the same quarter in the previous year. The largest economy of Asia and the second largest economy in the world, Japan, reported a record 35% decline in exports last month. And perhaps the worst news of all?China registered a growth rate of just 6.8% for the quarter ending December 2008. For China, used to double-digit growth rates for much of the last three decades, including through the East Asian crisis, the latest figure is a major blow.
What do these numbers really mean? For one, the numbers are clear evidence of a severe slowdown in the West, particularly the US. East Asian countries, propelled by exports, are taking a battering as demand in major markets continues to slump. The de-coupling hypothesis lies in complete tatters. The numbers also show that stimulus packages announced in various countries throughout East Asia are yet to show any effect. China has cut interest rates five times since September and announced tax cuts and government spending programmes in excess of $500 billion. Of course, some of the effects of these programmes may be lagged, but it still shows the immense difficulty of the task that lies ahead?and the long period of time that a recovery may take. The sharp slowdown in the leading economies of Asia isn?t good news for India. It was hoped that markets in East Asia may compensate for the slowdown in the West for the export of Indian goods and services. Now, it seems most unlikely. The slowdown in East Asia is also bad news for the major Western economies which, like India, are looking for some growing markets. Above all, unlike any crisis in recent decades, this crisis is taking a toll on every single region of the world.
