As the US economy is reeling un- der one of the worst ever finan- cial crisis, the ripple effects have been showing off significantly in almost all parts of the world. And, Asia is no exception. The current crisis has once again debunked the decoupling theory and proved that no part of the global economy is immune from the financial turmoil that is wreaking havoc in the US. Nevertheless, very few would have envisaged that the seemingly small malaise, which began in US housing market, would snowball into a financial crisis of global proportions.
With the escalating credit and liquidity crisis, coupled with the fear of US sliding into recession, Asia's stock market indexes fell quite remarkably than those of G3 economies (US, Europe and Japan). Growth in industrial production is down and the growth in retail sales is also losing momentum. There are clearly some very difficult challenges ahead for Asia. In the short-term, Asia's economic and financial systems will likely come under increased pressure as the effects of the global credit shortage intensify. Growth in Asia, battered by the effects of the financial crisis that began in advanced economies and is now engulfing emerging markets, is expected to slow sharply in 2009, the IMF says in its latest forecast for the region.
The tsunami that hit the Wall Street during 2007 reached the Asian shores in 2008, affecting all major economies in the region. Despite Asia's strong fundamentals, considerable reserves, improved macroeconomic policy frameworks, and robust corporate balance sheets and banking systems, the region is being rattled by the crisis due to its close trade and financial integration with the rest of the world. Asian economies that are hard hit by the US turmoil had a negative impact on its performance and growth. The trade, performance and the business cycle of all the major Asian economies, such as India, China, and Japan, have been disturbed.
During the year, the GDP growth rate of Asian economies decreased by almost 1.5%, which recorded approximately 9% growth in 2007. The major economies in Asia like India and China showed negative growth in the year. According to the ADB Bank, development in most of the East Asian economies will slow down, and further there would be a fall in the growth rate of China to 8% in 2009, which was 8.5% in 2008. Indeed, the figures are quite alarming; the industrial production in China has fallen from 18% to as low as 8%, while spending in India is largely squeezed. Other Asian economies such as Japan, Hong Kong and Singapore are also in recession.
Indonesia, as a big exporter of commodities, has been squeezed by falling prices. But Malaysia, which is much more dependent on foreign demand, will be hit harder. Its exports are equivalent to over 100% of its GDP proportionally, more than three times bigger than Indonesia's. On the other hand, the massive debts of South Korea's households and firms might suggest serious trouble ahead. Besides this, Taiwan is already in recession. Its GDP fell by 1% in the year to the third quarter, dragged down both by a collapse in exports and by weak domestic demand.
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