- International Monetary Fund. Asia and Pacific Dept
- Published Date:
- May 2009
Regional Economi c Out look Asia and Pacific Global Crisis: The Asian Context
© 2009 International Monetary Fund
Regional economic outlook : Asia and Pacific. -- Washington, D.C. : International
Monetary Fund, 2009. – (World economic and financial surveys, 0258-7440)
“Global crisis : the Asian context.”
Includes bibliographical references.
1. Economic forecasting – Asia. 2. Economic forecasting – Pacific Area. 3. Asia – Economic conditions, 1945- . 4. Asia – Economic conditions, 1945-– Statistics. 5. Pacific Area – Economic conditions, 1945- . 6. Pacific Area – Economic conditions, 1945- – Statistics. I. International Monetary Fund. II. Series: World economic and financial surveys.
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- Executive Summary
- I. Overview
- II. Recessions and Recoveries in Asia: What Can the Past Teach Us about the Present Recession?
- III. How Vulnerable Is Corporate Asia?
- How Badly Has the Corporate Sector Been Hit?
- How Large Are the Default Risks?
- How Large Are the Likely Default Losses?
- Why Is Asia’s Corporate Sector Expected to Remain So Resilient?
- How Badly Will the Banks Be Affected?
- Stress Testing the Corporate Sector
- Appendix 3.1. Using Vector Autoregressions to Analyze the Transmission of Shocks across Sectors
- Appendix 3.2. Micro-Level Evidence on Real Macro-Financial Linkages
- Appendix 3.3. Computation of Banks’ Expected Losses from Corporate Sector Distress
- Appendix 3.4. Stress Testing Corporate Balance Sheets
- IV. Revisiting Japan’s Lost Decade
- 1.1 How Did the Crisis Affect Low-Income Countries in Asia?
- 1.2 The Global Financial Crisis and Trade Finance in Asia
- 1.3 Housing Prices: Could Further Declines Threaten Growth?
- 1.4 Financial Conditions in Key Asian Economies
- 1.5 The Case for Fiscal Stimulus
- 3.1 How Is the Economic Downturn Affecting China’s Corporate Sector?
- 4.1 IMF Seminar on Japan-U.S. Parallels: Summary of Proceedings
- 4.2 Japan: Key Financial System Reforms, 1996–2003
- 1.1 Asia: Real GDP
- 2A.1 Asia: Identification of Previous Recessions since 1980
- 3.1 Selected Asia: Share of Debt of Firms with Interest Cover Ratio Less than One, by Size, 2007
- 3.2 Asia: Potential Impact on Bank Capital from Corporate Sector Distress
- 3A.1 Summary: Estimation Results
- 4.1 Key Events in Japan’s Banking Crisis
- 4.2 Japan: Major Tax Cuts during the 1990s
- 4.3 Japan: Estimated Multipliers
- 4.4 Summary of Bank Support Measures in Asia
- 1.1 Asia: 2008Q4 GDP Growth—Actual vs. Predicted
- 1.2 2008Q4 GDP Growth
- 1.3 Asia: Export Exposure to G-2
- 1.4 Emerging Asia Intraregional Exports and United States Non-Oil Imports
- 1.5 Share of Advanced Manufacturing Value-Added in GDP
- 1.6 Share of Advanced Manufacturing Value-Added in GDP and 2008Q4 GDP Growth
- 1.7 Emerging Asia (Excluding China and India): Direction of Exports
- 1.8 China: Imports of Parts and Components
- 1.9 Changes in International Claims of Reporting Banks vis-à-vis Asia
- 1.10 Emerging Asia: External Bond Issuances
- 1.11 Emerging Markets: Stock Market Performance
- 1.12 Selected Asia: Nominal Effective Exchange Rate
- 1.13 Emerging Asia: Changes in Foreign Exchange Reserves
- 1.14 Selected Asia: Changes in Growth of Credit to Private Sector and Interest Rates
- 1.15 Selected Asia: Inventories and Shipments
- 1.16 Selected Emerging Asia: Contributions to 2008Q4 GDP Growth
- 1.17 Selected Asia: Real Private Investment in Machinery and Equipment and Real Residential Investment
- 1.18 Selected Asia: Employment Growth
- 1.19 Selected Asia: Unemployment Rate
- 1.20 Japan, China, and India: Contributions to Growth
- 1.21 Selected Asia: Contributions to Growth
- 1.22 Asia: Output Gap and Potential Output Growth
- 1.23 Asia: Consumer Prices
- 1.24 Asia: Current Account Balance
- 1.25 Emerging Asia: Net Private Capital Flows
- 1.26 Asia: GDP Growth
- 1.27 Asia: Effect on GDP Growth from Weaker Consumption Growth
- 1.28 Foreign Reserves over External Financing Requirements
- 1.29 Selected Emerging Asia: Projected Net Private Capital Flows
- 1.30 Asia: Risk Factors
- 1.31 Asia: Policy Rates
- 1.32 Central Bank Balance Sheet: Total Assets
- 1.33 Discretionary Fiscal Measures, 2009 and 2010
- 1.34 Composition of Fiscal Stimulus Measures, 2009
- 1.35 Real Private Consumption Expenditure
- 2.1 Recessions, Recoveries and Expansions
- 2.2 Recession Timeline since 1980
- 2.3 Asia and United States: Recession Timeline since 1980
- 2.4 Asia: Previous Recessions since 1980 (Median real level, peak of the recessions=100)
- 2.5 Cumulative Output Loss in Previous Recessions since 1980
- 2.6 Asia: Previous Recessions since 1980 (Median)
- 2.7 Asia: Credit to Private Sector during Previous Recessions since 1980
- 2.8 Asia by Regional Groups: Cumulative Output Loss during Previous Recessions since 1980
- 2.9 Asia by Type of Export Activity: Real Gross Domestic Product during 2000–01 Recession
- 2.10 Asia: Response of Real Gross Fixed Investment Growth to a Shock to Real Export Growth
- 2.11 Asia: Real Gross Fixed Investment during Previous Recessions since1980
- 2.12 Selected Asia: Real Private Consumption Expenditure during the Asian Crisis
- 2.13 Asia: Real Exports of Goods and Services during Previous Recessions since 1980
- 2.14 Asia: Real Effective Exchange Rate during Previous Recessions since 1980
- 2.15 Asia: Previous Recessions since 1980 by Type of Export Intensity of the Economies
- 2.16 Average Quarterly Growth during Recovery Phase
- 2.17 Asia: Change in Trend GDP Growth during Previous Recessions since 1980
- 2.18 Asia: Nominal Policy Rates during Previous Recessions since 1980
- 2.19 Asia: Fiscal Indicators during Previous Recessions since 1980
- 2.20 Asia: Impact of Policy Actions during Previous Recessions since 1980
- 2.21 Asia: Change in Fiscal Balance in Selected Recessions
- 3.1 Selected Asia: Decline in Industrial Production
- 3.2 Asia: Share of Debt of Firms with Interest Cover Ratio Less than One
- 3.3 Selected Asia: Corporate Bankruptcies
- 3.4 Emerging Asia: Stock Market Performance
- 3.5 Asia Excluding Japan: Equity Performance by Sector
- 3.6 Korea: Lending by Size of Companies
- 3.7 Asia: Credit Default Swap Spreads
- 3.8 Asia: One-Year-Ahead Default Probability of Nonfinancial Corporates
- 3.9 Selected Asia: Historical Expected Default Frequency
- 3.10 Asia: Change in Industrial Production—Actual vs. Predicted
- 3.11 Expected Implication of Higher Default Risks on Firm Investment
- 3.12 Selected Asia: Cumulative Impact on Banks’ Default Probabilities from Shock to Corporate Default Probabilities, after 10 months
- 3.13 Asia: Nonfinancial Corporate Sector—Annual Average Expected Losses One Year Ahead
- 3.14 Asia: Leverage (Debt-to-Equity Ratio)
- 3.15 Asia: Profitability (Return on Assets)
- 3.16 Asia: Liquidity (Quick Ratio)
- 3.17 Asia: Banking Sector—Expected Losses from Corporate Sector Distress One-Year-Ahead
- 3.18 Profit Shock vs. Interest Rate Shock: Share of Firms with Interest Cover Ratio Less than One
- 3.19 Profit Shock vs. Interest Rate Shock: Share of Impaired Debt of Firms with Interest Cover Ratio Less than One
- 3.20 Share of Debt of Firms with Interest Cover Ratio Less than One, by Size
- 3.21 Share of Debt of Firms with Interest Cover Ratio Less than One, by Sector
- 4.1 Japan’s Twin Bubbles: Stock Market and Real Estate
- 4.2 Japan: Growth and Unemployment
- 4.3 Japan: Inflation and Output Gap
- 4.4 Japan: “Three Excesses” of Corporate Sector
- 4.5 Japan: Fiscal Situation of the General Government
- 4.6 Japan: GDP Growth and Supplementary Fiscal Stimulus Package
- 4.7 Japan: Structural Balance of the General Government
- 4.8 Japan: Central Government Public Investment
- 4.9 Japan: Real Public Investment
- 4.10 Japan: Financial Surplus of Nonfinancial Corporate Sector
- 4.11 Japan: Share of Central Government Spending
- 4.12 Japan: Fiscal Balance and General Government Debt
- 4.13 Japan: Interest Rates
- 4.14 Japan: Bank Lending
- 4.15 Japan: Credit Spreads
- 4.16 Bank of Japan: Assets and Balance of Banknotes in Circulation
- 4.17 Japan: Monetary Aggregates
- 4.18 Japan Premium
- 4.19 Cumulative Loans Losses of Japanese Banks since 1992
- 4.20 Japan: Nonperforming Loans
In this Regional Economic Outlook: Asia and Pacific, the following groupings are employed:
- “Emerging Asia” refers to China, India, Hong Kong SAR, Korea, Singapore, Taiwan Province of China, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.
- “Industrial Asia” refers to Japan, Australia, and New Zealand.
- “Asia” refers to emerging Asia plus industrial Asia.
- “Newly industrialized economies” (NIEs) refers to Hong Kong SAR, Korea, Singapore, and Taiwan Province of China.
- “ASEAN-4” refers to Indonesia, Malaysia, the Philippines, and Thailand
- “ASEAN-5” refers to Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.
- “G-2” refers to the euro area and the United States
- “G-3” refers to the euro area, Japan, and the United States
- “TED Spreads” refers to the difference between the interest rates on interbank loans and short-term government debt.
The following abbreviations are used:
Asset-backed commercial paper
American International Group
Association of Southeast Asian Nations
Bank for International Settlements
Bank of Japan
contingent claims analysis
credit default swap
consumer price index
Corporate Vulnerability Utility
Expected Default Frequency Implied Corporate Debt Spread
Financial Conditions Index
foreign direct investment
Financial Services Agency
gross domestic product
Global Financial Stability Report
Global Integrated Monetary and Fiscal model
heavily indebted poor country
interest coverage ratio
Japanese Government Bonds
London Interbank Offered Rate
Multilateral Debt Relief Initiative
ministry of finance
Morgan Stanley Capital International
newly industrialized economy
Organization for Economic Cooperation and Development
ordinary least squares
purchasing power parity
Regional Economic Outlook
seasonally adjusted at an annual rate
Small and medium-sized enterprise
United Nations Industrial Development Organization
World Economic Outlook
wholesale price index
zero interest rate policy
The following conventions are used:
- In tables, a blank cell indicates “not applicable,” ellipsis points (…) indicate “not available,” and 0 or 0.0 indicates “zero” or “negligible.” Minor discrepancies between sums of constituent figures and totals are due to rounding.
- An en dash (–) between years or months (for example, 2007–08 or January–June) indicates the years or months covered, including the beginning and ending years or months; a slash or virgule (/) between years or months (for example, 2007/08) indicates a fiscal or financial year, as does the abbreviation FY (for example, FY2008).
- An em dash (—) indicates the figure is zero or less than half the final digit shown.
- “Billion” means a thousand million; “trillion” means a thousand billion.
- “Basis points” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).
As used in this report, the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.
This Regional Economic Outlook: Asia and Pacific was prepared by a team coordinated by Joshua Felman and Roberto Cardarelli of the IMF’s Asia and Pacific Department. The team included Vivek Arora, Carol Baker, Tarhan Feyzioğlu, Kristian Hartelius, Mark Horton, Anna Ivanova, Sonali Jain-Chandra, Kenneth Kang, Jacques Miniane, Papa N’Diaye, Dan Nyberg, Hiroko Oura, Romuald Semblat, Martin Sommer, Murtaza Syed, Kiichi Tokuoka, Olaf Unteroberdoerster, Xu Wei, and Harm Zebregs. Souvik Gupta, Ioana Hussiada, Shuda Li, Adil Mohommad, and Fritz Pierre-Louis provided research assistance; and Yuko Kobayashi, Ranee Sirihorachai, Livia Tolentino, and Lesa Yee provided production assistance.
The spillovers from the global crisis have affected Asia with considerable speed and force. GDP in emerging Asia excluding China and India plummeted by no less than 15 percent on a seasonally adjusted annualized basis in the last quarter of 2008, and a further decline is expected for the first quarter of 2009.
In many ways, this severe impact was unexpected. Asia is far from the epicenter of the crisis, not just geographically but also in the sense that it did not indulge in the financial practices that led to serious problems in advanced economies’ banking systems. Moreover, before the crisis the region was in sound macroeconomic shape, and thus in a strong position to resist the pressures emanating from advanced economies. In the event, however, the impact on Asia has been even swifter and sharper than in other regions.
What explains this outcome? As Chapter 1 explains, the answer lies in Asia’s exceptional integration with the global economy. Much of Asia relies heavily on technologically sophisticated manufacturing exports, products for which demand has collapsed. At the same time, Asia’s financial ties with the rest of the world have deepened over the past decade, exposing the region to the forces of global deleveraging.
Looking ahead, Asia’s growth path will continue to run parallel to the global economy. For the rest of 2009, the external shock is expected to continue to spill over into private investment and consumption, causing many countries to register negative growth rates. Then, as the global economy revives in 2010, so too will Asia. But the recovery is likely to be tepid—and not only because the global economy will remain weak. As Chapter 2 argues, historical experience shows that investment tends to recover slowly from downturns, especially those that involve financial stress.
The risks to this baseline scenario are skewed to the downside. In particular, a delayed global recovery may trigger more insidious feedback loops between the real and financial sectors in Asia. As discussed in Chapter 3, continued weak demand and tighter financial conditions could lead to a surge in corporate distress that could feed back into Asian banks, making them even less able or willing to extend credit to the private sector. At the same time, a surge in corporate bankruptcies could spill over to domestic demand, with a sharper-than-anticipated increase in unemployment rates putting a dent in consumption.
Over the longer horizon, Asian economies are at risk of a structural decline in demand from advanced economies. Households in advanced economies have started repairing their over-leveraged balance sheets, as the era of easy credit to finance purchases of consumer durables could well be over. In that case, the growth rate of Asian manufacturing and exports could be structurally lower for many years, and Asia’s export-led growth strategy may no longer pay the same dividends as in the past.
In this context, the challenge for Asia’s policymakers is twofold:
- First, forceful countercyclical policies need to be sustained, to help Asia come out of the recession more quickly and vigorously, and to provide insurance against downside risks. On the fiscal policy side, it will be important to sustain the stimulus injected in 2009 into next year, not least as an insurance policy against risks that have yet to reveal themselves. At the same time, it will be critical to preserve fiscal credibility by signaling that such stimulus packages are extraordinary and will be unwound once the recovery is firmly established. On the monetary policy side, many central banks still have scope to reduce policy rates, while some may need to support credit to the private sector through unconventional measures. Japan’s experiences with the crisis of the 1990s, examined in Chapter 4, suggest however that these measures may need to be accompanied by timely steps to address any underlying stress in the financial system as well as in household and corporate balance sheets.
- Second, Asia may need to rebalance growth away from exports and toward domestic demand in order to return to precrisis growth rates. China is already trying to catalyze private consumption, which has been falling for a decade relative to GDP. In principle, there should be scope to do this in many other Asian countries, particularly by building stronger social protection systems that will reduce the need for precautionary savings to meet necessities related to health, education, and retirement. Over the longer term, exchange rate appreciation also might help—by providing price incentives to shift resources toward production for domestic use and by raising real household income, thereby spurring consumption.