Most Asian economies are in a better position to weather the global financial storm due to significant foreign reserves, and painful lessons gleaned from the 1997 crisis. Growth in the Emerging Asia region is projected to moderate to 7.7% in 2008 and 7% in 2009, from 9¼% last year, according to the twice-yearly World Economic Outlook report released recently by the International Monetary Fund.

The report projects worldwide growth at 3% in 2009 but expects near zero or negative growth in the advanced economies that includes North America, Europe and Japan. The IMF forecasts global recovery from the escalating financial uncertainty should begin near the end of 2009.

Asia’s positive, albeit slower, growth will be propelled by the regional twin engines of China and India. Both countries are expected to experience lower demand on weaker exports but should continue to be supported by strong private consumption.

State-run China will not be insulated from the current economic headwinds but its overall rate of growth should remain very strong, at around 9.7% this year and 9.3% in 2009 — compared to 11.9% in 2007. The economic imperative for the Chinese is to continue to shift its economy to one fueled more by domestic demand than over-reliance on exports.

Growth in China eased to 10.5% (year over year) in the first half of 2008, 2.5% points slower than the same period last year, partly due to slackening exports. However, activity continued to be supported by steady investment growth and accelerating consumption.

Likewise, India is not immune from the global liquidity crunch but the IMF noted that the Indian economy should continue to do well. India is likely to register GDP growth of 7.9% in 2008, which may slip to 6.9% in 2009, compared to 9.3% last year.

Indian growth in the second quarter slipped to 7.9%, having risen by 8.8% in the preceding quarter, on the back of weakening investment while private consumption and export growth have held up well.

IMF projects that the ongoing financial turmoil will have minimal impact on India, which is still largely a closed economy. The relatively high 7% growth forecast reflects India’s strong internal growth dynamics from rapid productive growth and from its process of integration into the global economy that is still continuing.

The IMF did caution that Emerging Asia can anticipate more weakness ahead in response to slowing demand from advanced economies and growing strains in regional financial markets.

The two biggest newly industrialized economies, South Korea and Taiwan, will see growth moderate, with South Korea’s economy expanding 4.1% this year and 3.5% in 2009. Taiwan will see 3.8% growth in 2008 and 2.5% next year.

In the newly industrialized Asian economies (NIEs) and the Association of Southeast Asian Nations (ASEAN) economies, activity has also been decelerating. Domestic demand has softened, as rising food and fuel prices have started to weigh on consumption, while declining profit margins and weakening demand have prompted firms to scale back their investment plans. Vietnam is undergoing a sharp correction as the demand boom caused by large capital inflows unwinds, cited the IMF report.

Selected Asian Economies: Real GDP and Consumer Prices
(Annual percent change unless noted otherwise)
Source: IMF World Economic Outlook – October 2008

1Movements in consumer prices are shown as annual averages.
2Percent of GDP.
3Consists of developing Asia, the newly industrialized Asian economies, and Mongolia.
4Includes Maldives, Nepal, and Sri Lanka

Australia and New Zealand are slowing down noticeably, after prolonged economic expansions driven by commodity and housing booms. Real GDP growth in Australia is projected to fall below potential, to about 2½% in 2008–09 from 4¼% in 2007. Data released last month showed Australia’s economy grew at its slowest pace in almost four years in the second quarter, and that the annual growth rate had fallen to 2.7%.