Asia rebound after crisis points to new order

Google/AFP, By Martin Abbugao (AFP)

SINGAPORE — A year since the failure of Lehman Brothers sent the global economic system crashing, the speed of Asia's recovery compared to the West may signal a realignment of world power, economists say.

China and other regional nations, long reliant on Western markets to drive their export-dependent economies, have weathered the storm thanks to domestic demand backed by giant stimulus packages and a growing middle class, they said.

A year since the failure of Lehman Brothers Asian economies have recovered fasrter than many in the west

And Ashok Charan, a professor at the National University of Singapore Business School, said Asian economies will in the future rely less on the West to drive economic growth.

"As Asian economies recover, a new world order in which Asia emerges relatively stronger is likely," Charan wrote in the Straits Times newspaper.

"The emergence and growth of the middle- and upper-middle classes in China, India and other Asian countries will continue to drive domestic consumption in the region."

Lehman Brothers, the 158-year-old US investment bank, filed for bankruptcy on September 15, 2008 after its exposure to billions of dollars of failed subprime mortgage securities heralded its downfall.

The ensuing chaos sparked a financial firestorm and triggered the worst economic crisis since the Great Depression in the 1930s.

Export-reliant Asian economies reeled as demand for their products tumbled in North America, Europe and Japan.

However, analysts say massive stimulus measures to boost domestic demand has helped Asian economies weather the global slump.

China has been singled out for its crucial role in leading the region out of the downturn, with World Bank president Robert Zoellick saying recently its growth "helped to prevent the global crisis from getting worse".

For years China has been considered the workshop of the world, where cheap labour and a massive workforce helped exports soar and gross domestic product register double digit growth between 2003 and 2007.

The economic slump battered shipments as demand evaporated in the key markets of the US and Europe.

However, Beijing pumped almost 600 billion dollars into its economy, ramping up infrastructure projects and providing subsidies for its 1.3 billion people to spend at home.

Urban fixed asset investments, a measure of government spending on infrastructure, rose 33.6 percent in the first half of 2009. And industrial output, which illustrates activity in the nation's factories, expanded 9.1 percent in the second quarter, government figures show.

The power of the stimulus increased imports and boosted exports to China for other regional nations such as Japan.

Zoellick earlier this month said: "With growth in China now projected at close to eight percent for 2009 as a whole, and signs of stabilisation in many other economies in Asia and around the world, the chances of a truly global recovery have increased measurably."

Cyn-Young Park, a senior economist with the Asian Development Bank (ADB) in Manila said that "domestic demand held up fairly well especially in the economies which are demand-based like China and Indonesia".

Second-quarter data show economies such as Singapore and Hong Kong, which dived into recession in late 2008, have returned to growth.

During the same period, US gross domestic product was estimated to have shrunk 1.0 percent and the eurozone economy dipped 0.1 percent.

While Asian nations are expected to begin buying more from each other in the future to help sustain exports, the US is struggling with a massive deficit and high unemployment while Europe grapples with its own internal struggles.

Countries with bigger domestic populations, including China, India, Indonesia and Vietnam, have continued to grow during the downturn, although the pace of expansion has slowed. And Australia is the only economy in the developed world to have avoided recession.

Domestic demand "played a big role in output growth in many of Asia's economies in recent months," Credit Suisse Economic Research said in a report.

"Asian economies have come a long way from rock bottom and we think there is more spring in the bounce," it said.

Japan and China alone spent more than a trillion dollars on stimulus measures, while other countries pumped tens of billions into their economies to fight off the downturn.

Japan, the world's second largest economy, limped out of recession in the three months to June, with former prime minister Taro Aso crediting the government's measures for the achievement.

Lessons learnt from previous slumps were also crucial in Asia's resilience, analysts say.

The Asian financial crisis at the end of the last decade forced governments to implement stricter financial regulatory supervision at a time when risk management failures elsewhere eventually led to last year's financial chaos.

As a result, Asian banks had limited exposure to the toxic property-linked assets which ravaged their western counterparts.