Asia-Pacific economic outlook for 2009 (Part 1)

Given expectations of a sharp US downturn in 2009, the rest of the world awaits the impact of the economic crisis with a substantial degree of uncertainty. The Central Bank of Chile, in fact, has lowered its growth forecast to below the previously predicted 2%. Asia-Pacific nations are also reducing forecasts, which, in turn, decrease domestic demand; a negative spiral that may ultimately affect the pockets of Chileans, too.

If Asia-Pacific economies are negatively impacted by the crisis, Chile will also be hard hit, whereas nearly 40% of its exports are bought by Asian nations. Thus, issues that impact Asia-Pacific demand necessarily have an impact on Chilean export revenues.

The subprime crisis sparked the crisis, when high-risk mortgages funds became highly sought-after by investment banks and financial institutions in the United States, which, in turn, soon began to travel the globe in search of buyers. When it was discovered that these mortgages were owed people who could never make their payments, the collapse began in which each investor began to realize they would never get their money back, much less make a return on said investment.

First US banks then those in other nations, involved in what turned out to be a game of high-risk speculation, began to fold. From one day to the next, firms were unable to borrow for future projects. They simply canceled pending projects, reducing purchases, and then expenses. The crisis had begun and even giants such as Japan, India and China felt the impact.

The crisis in 2009

 As the international banking system wobbles, stock markets fluctuate and credit becomes scarce, firms have watched their sales plummet. Prices have fallen, yet not everyone is willing to buy. The fear for importers is that their suppliers will not meet their commitments. Exporters, on the other hand, fear that their customers will not pay their bills. When compounding the issue of banks’ difficulty in issuing letters of credit, the standard medium of payment in international business, the outlook is not good for world trade. Asia, being the world’s production hub, is therefore closely monitoring these issues.

For Xulio Rios, director of the Observatory for China Politics (Observatorio de la Política China, Casa Asia-IGADI), the crisis can, "without a doubt, affect the Asia-Pacific’s dynamic growth and employment levels, especially in countries where production is predominantly export-oriented. It can also impact Western markets (particularly the US and Europe), which represent a significant share of the region’s foreign trade.” Rios also sees some opportunity for change in the Asian region, because "the impact will require it to make internal adjustments that may help improve upon their existing strengths, giving rise to new patterns of development, reducing dependencies and resulting in a more concerted regional integration effort.” This, according to Rios, depends on the willingness of Asia-Pacific governments to carry out reform and avoid measures which generate social instability.

Jose Diaz, economist and professor at Chile’s Universidad Catolica, states that "the Asian Development Bank and the IMF both expect the largest Asia-Pacific economies to slow down this year. Thus, the net effect may simply be lower growth rates, as opposed to collapses. For example, China was projected to grow by 10%. It has revised that forecast to 8%, while India reduced its figures from 8% to 6%. The Association of Southeast Asian Nations (ASEAN) average dropped from 5% to 3%. This situation clearly differs from that of other countries, such as the United States; a nation which is expected to experience negative growth in 2009."

Diaz also asserts that the world’s smallest nations, such as Laos or Cambodia, will be affected; as will Latin America. He also adds that nations like Vietnam can always find opportunities, given their ramp-up of a manufacturing sector capacity that rivals even China in price and quantity.