ADB: Emerging East Asia enters transition from recession to recovery

• Source: Xinhua
• [14:12 July 23 2009]
• Comments

Emerging East Asia has entered the transition from recession to recovery, possibly V-shaped, with gross domestic product (GDP) growth sourced more from domestic stimulus than a resurgence in external demand, the Asian Development Bank (ADB) said on Thursday.

    Economic growth in emerging East Asia dropped sharply in the first quarter of 2009, but the pace of decline has slowed during the second quarter, ADB said in its latest Asia Economic Monitor, a semiannual review of emerging East Asia's growth and policy issues. The report covers China, South Korea and the ten members of the Association of Southeast Asian Nations.

    In the first quarter of 2009, aggregate GDP growth of major emerging East Asian economies declined to 1.2 percent year-on-year, down from 2.6 percent in the last quarter of 2008 and in sharp contrast to the 8.5-percent growth in the first quarter of last year. Still, despite the global recession, most of the region's economies have performed better during the current economic crisis than during the 1997/98 Asian financial crisis, ADB economists said.

    Moreover, available data on second quarter performance and some leading indicators suggest that the slowdown may have bottomed out, according to the report.

    In the second quarter, China's growth increased to 7.9 percent from 6.1 percent of the first three months, while early estimates show that Singapore's economic contraction moderated to -3.7 percent from -10.1 percent posted in the previous quarter.

    Industrial production growth has moved away from recent lows in Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. In Indonesia, consumer confidence rose during the first six months of the year. And purchasing managers' indexes in China and Singapore have been on the rise as well in recent months.

    The slowdown in growth -- coupled with lower oil and food prices -- helped inflation to decline across the region, which made it possible for authorities to continuously ease monetary and fiscal policies.

    From February to June 2009, for instance, China's prices deflated by an average of about 1.5 percent, continuing their decline from the 8.7 percent inflation reached in early 2008, according to ADB. Meanwhile, inflation in Vietnam fell to 3.9 percent in June after reaching a peak of 28.3 percent in August 2008.

    Central banks have aggressively reduced policy rates in response as well as introduced a variety of other measures to increase liquidity in the banking system and to encourage banks to expand lending.

    Favorable monetary conditions in China have seen bank lending surge in the first half of 2009. Bank Indonesia reduced its policy rate seven times since the beginning of 2009 -- from 9.25 percent to a record low of 6.75 percent -- to stimulate economic growth. The Philippine central bank also took a gradual approach to cutting its policy rate -- reducing it six times since December 2008. Currently, the Philippines' overnight borrowing rate stands at 4 percent while overnight lending at 6 percent.

    China is implementing a sizable fiscal stimulus package announced in November 2008. With the two-year stimulus package worth 4 trillion yuan (586 billion U.S. dollars), China's economy maintain growth amid a collapse in exports. The 6.1 percent GDP growth in the first quarter of 2009 was the lowest since the introduction of quarterly GDP figures in the fourth quarter of 1999. But growth performance improved in the second quarter, increasing by 7.9 percent.