Whenever the old order yields place to the new there is turbulence in the interim.
oday a tottering Euro zone and the fragile US recovery have left Asia shaken and stirred but Asia remains a beacon of growth. In fact, Goldman Sachs’s Jim O’ Neill of BRIC’s fame says China’s gross domestic product could match that of the US as early as 2027 or perhaps even sooner.
Another straw of good news is the Organisation of Economic Cooperation and Development (OECD) economic outlook released in May which says that Asian economies will do better than Europe’s. Doomsayers predicting the start of the unravelling of the Asia Story will eat crow like those who cried hoarse about the impending end of the BRIC growth saga in 2008.
There is also no denying the fact that winds of change rocking the global village are forcing Asian countries to revisit their growth strategies.
The crisis in Europe and slowdown in the US has meant that demand from West is shrinking and cannot be banked upon. IMF has warned that “Asia is one of the world’s most trade-dependent regions, exporting everything from commodities such as metals and rice to sophisticated electronic products and cars. So, the level of external demand becomes crucial in determining the region’s economic performance.”
[quote align=”center” color=”#b64735″]The global economic scenario has been witnessing a tectonic shift. The balance is shifting back to the East. Multinationals have queued up over the years for a presence in Asia, especially India and China as their large populations spell huge markets. Some of them have found the going tough and thrown in the towel but no one has refuted the opportunities that Asian nations hold.[/quote]
For India, domestic demand has been the driver and after the 2008 meltdown the world’s second-largest economy China too is focusing on internal market to decrease dependence on exports. The war on inflation by the Asian giants India and China has inflicted collateral damage on their economic growth. The two nations are still growing and the rate looks slower only because of the earlier breakneck speed.
OECD numbers support this view. The Paris-based think tank has cut India’s growth forecast for 2012 by more than a percentage point to 7.1% from its November estimate of 8.2%, but said it could recover to 7.7% in 2013. OECD is more optimistic over the long-term and said India could overtake China by 2020. China’s growth is seen rebounding from 8.2% this year to 9.3% in 2013.
Though the Indian policymakers seem to have scuppered growth as reflected in latest GDP growth figure of 5.3% for the fourth quarter of 2011-12, the lowest in nine years but experts are unanimous that the main reason for this mess is that politics has trumped economics so far. There is no reason to panic as this slowdown will hurt the economy in the short-term but not cripple it. With the general elections due in 2014, the instinct for political survival will ensure that structural and policy reforms are initiated to propel the Indian economy back into the high-growth trajectory. The dynamic Corporate India will grab the opportunity with both hands.
The Asia growth story particularly has little to worry because as far as the global investors are concerned for every struggling India there is a robust Indonesia or the Philippines or Vietnam.
The need of the hour is what International Monetary Fund’s deputy managing director Nemat Shafik calls an “Economic Spring”. Shafik was talking about Middle East but her advice that each country needs to define its own growth strategy is true for the whole of Asia.
[quote align=”center” color=”#b64735″] each country needs to define its own growth strategy [/quote]
The IMF deputy managing director’s list of common issues applies to most Asian nations: “How can countries move away from generalised subsidies to ones targeting the poor to free up resources to invest in improving the education system and infrastructure? How can tax systems become fairer so that the poorest can be given a minimum standard of living? Given bloated public sectors, how will the private sector be induced to create the jobs needed?” Answers to these questions will not only determine the future of economic growth but also political stability of the region.
China has been facing unrest in areas that have not benefitted from economic reforms. In India, opinion polls have showed that many want Prime Minister Manmohan Singh, one of the fathers of reforms that started in the 1990s, to be replaced. A country that once used to be happy with the Hindu rate of growth around 3.5% is no longer content with 6 per cent-plus pace. The high prices of food, fuel and credit is breaking the citizens’ backs. To make things worse the slowdown is translating into lower wage hikes that do not even neutralise the effect of rising inflation.
There is no one pill for all economies. Every country will have to mix its own growth cocktail.
For example, according to media reports quoting experts, “China is currently working to rebalance its economy by attempting to shift from a reliance on exports to boosting domestic consumption. This is expected to help ASEAN nations that export consumer, food and manufacturing-related items that would benefit from stronger consumption. In contrast, South Korea and Japan would be adversely affected as they tend to be more geared towards investment demand in China.”
There is another example. India has seen its services exports take a hit. Click here to read the full article.
