Asia cannot export its way out of economic crisis - ADB

26 August 2009 11:27  [Source: ICIS news]

SINGAPORE (ICIS news)--Asia cannot rely on exports in the near term as it seeks to recover from the global economic slowdown, but instead will have to rebalance its growth and focus on its domestic economy, a regional multilateral institution said on Wednesday.

“In view of the weak outlook for the major global economies, demand for Asia's exports is likely to recover only gradually,” the Asian Development Bank (ADB) said in its Key Indicators for Asia and the Pacific 2009 report released on Wednesday.

“Asian economies are therefore unlikely to be able to export their way out of this slump, as they did after the 1997/1998 Asian financial crisis,” ADB added.

Exports had been the main engine of growth for Asian economies until external demand collapsed late last year as the world faced its worst recession since the Second World War.

The US - Asia’s major export market - remained in recession, while economies in Europe continued to be weak despite more positive news from Germany and France.

With growing intolerance for current account deficits - a condition that occurs when an economy imports more than it exports - in the US and elsewhere in the world, Asia needed to focus on its domestic economy to propel expansion, ADB said.

Japan, the world’s second-biggest economy, had shrunk severely and was the worst hit in Asia given its heavy reliance on exports, the ADB said.

The country’s exports in July slumped by 36.5% year on year to yen (Y) 4,844bn ($51bn), based on data from its Ministry of Finance released on Wednesday. Its imports fell 40.8% year on year. Japan's balance of trade surplus had a near four-fold jump to Y380.23bn.

ADB said that the Asia Pacific region now accounted for almost one third of global GDP, with eight countries in the region having a per capita GDP of more than $25,000, although most countries were much poorer.

“As a result of the global financial crisis, GDP growth rates in 2008 were significantly lower than those in 2007, but they continue to be substantially above the growth rates of Europe and North America,” it said.

ADB highlighted the need for the region to support its small and medium enterprises (SMEs), which are more oriented to the domestic economy but were still hit by the slump in external demand.

“Many SMEs do play an important role in exporting in some economies and industries. They also play an important role in the global production value chain, so that even when they do not export directly, their products can be important inputs into larger enterprises that are exporting,” ADB said.

ADB said steps must be taken to eliminate constraints to SME growth. This would help to lift domestic demand through job creation.

($1 = Y94.16)

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