For the first time after World
War II, the US, Europe and Japan are simultaneously in recession. Yet, Asia's fastest growing
major economies, China and India expanded more than
7% in 2008 and expected to grow 5-7% in 2009. Despite
all the gloom, it is still good growth. Asian economies are in a strong position to
resist the pressures emanating from the West. With sound macroeconomics,
the region is in shape to withstand the global financial crisis because of their
low debt levels, high savings rate, large foreign exchange reserves, resilient
financial systems and falling inflation. The consumption-to-GDP ratio in the
region has been very much lower than in the West. For instance, China's private
consumption-to-GDP ratio is a mere 35%, compared to more than 70% in the
US. Moreover, economies in the region are much more integrated and are less
susceptible to the developed economies than a decade ago. The region has still
many attractive sectors and its banks are sound, unlike
in the West. Banking regulators continue to ensure that the
banks have enough capital to undertake the risks. Asia's banks have been in
a better position to deal with the current financial crisis compared to their
Western peers partly because of the lessons learnt from the Asian crisis. The
latest trends indicate that the world's economic center of gravity may be
shifting from West to East.
The global financial crisis may have devastated banks in the West but
the story is different in East. Asia's banks have been injured but are not
collapsing. Unlike in the West, Asian governments haven't had to resort to
massive bailouts as in the case of Citigroup and American International Group
(AIG). Despite the downturn, some of them are
expanding, while their counterparts have collapsed. Asia's banks are
hoping that reforms made after the 1997-98 Asian crisis
would help them outstrip the challenges posed by the global
economic meltdown. Since September 2007, Asia's central banks have reacted
aggressively by introducing various monetary measures in the form of liquidity
injections and interest rate cuts. Globally, the total write-downs related to toxic
debt continue to rise and have already exceeded $1 tn, while Asia's share of the
total has been steady throughout and only around 3%. According to Bloomberg,
Asia currently accounts for only $24 bn of $550 bn in global subprime-related loan
write-offs. Relatively, very few banks bought into the promises of US
mortgage-backed assets.
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