Author: Gregore Lopez, ANU
Malaysia’s main challenge in 2009 will not be the global financial meltdown. Rather, it will be continued grandstanding between the ruling coalition and, since March 8th 2008, a much stronger opposition. The aftermath of March 8th, 2008 produced a lame duck Prime Minister with a lame duck government. The Prime Minister, Ahmad Badawi, instead of gracefully resigning for leading the United Front (Barisan Nasional) to its worst ever electoral results, stubbornly held on to the party presidency and Prime Ministership of the country.
However, members from within his party (United Malay National Organisation – UMNO) and the United Front were calling for his resignation. Simultaneously, the newly constituted opposition coalition – The Peoples Coalition (Pakatan Rakyat) led by the charismatic Anwar Ibrahim, was threatening to overthrow the ruling government through mass defection.
Author: Rajiv Kumar, ICRIER, New Delhi
The Paris-based International Energy Agency’s (IEA) recent report includes revised forecasts for world oil demand in 2009. IEA’s shocking estimate is that global demand for oil in 2009 will decline by half a million barrels per day (bpd) than in 2008! This is based on the IEA’s estimates that global economic growth will be a mere 1.2 per cent for all economies after being revised downwards from the nearly 3 per cent forecast earlier.
This implies that OECD economies will post a negative growth in 2009 and emerging economies are also likely to achieve only moderate GDP growth. China is expected to grow only at 6.5 per cent, the lowest rate in eight years, despite the massive stimulus that the authorities announced at the end of last year. Given the weakness in Chinese and US demand¸ global oil prices are likely to remain extremely soft this year.
What are the implications for India?
Special Author: Suman Bery, Director of NCAER, New Delhi
The recession now present in advanced economies seems set to continue for a while yet.
The annual Neemrana conferences on the Indian economy provide a valuable opportunity to take stock of the state of the US and world economies, and the implications of global developments for the Indian economy.
The conferences are held annually at the Neemrana Fort Palace hotel in Rajasthan. They are co-hosted by NCAER and ICRIER. International (primarily US) participation is organised by the NBER, arguably America’s most respected network of academics engaged in research on issues of economic policy. The format is designed to encourage informal, off-the-record discussion on a range of current issues in economic policy.
Special Author: Doan Hong Quang, World Bank, Vietnam
Vietnam began the year 2008 with high expectations. There was exuberance at the admission to the WTO and record growth of 8.5 per cent was recorded in 2007. The government set an even higher target in 2008, aiming for growth at 8.5-9 per cent.
Events took a seemingly unexpected turn. Signs of overheating, already evident at the end of 2007 amidst the asset bubble and rising inflation, became more and more visible towards the end of the first quarter.
The VN index lost almost 45 per cent of its value in just the first three months. The CPI was already running at 9.2 per cent for the first quarter, corresponding to a year-on-year rate of nearly 20 per cent, much higher than in neighbouring countries. Inflation rose from month to month and peaked in August, when the year-on-year rate reached 28.3 per cent.
To some extent, the price hike resulted from the surge of world prices, especially food and fuel prices. With a very open economy and a stable exchange rate, price rises in international markets were transmitted directly to domestic prices. Vietnam still maintains controls over prices of some essential goods and services, but the evidence shows that there were close correlations between the movements of international and domestic prices in controlled commodities.
Special Author: Quah Boon Huat, MIER, Malaysia
The economy in reverse
The Malaysian economy was not spared any damage in 2008, a year that will be remembered as a period of turbulence, when a deadly cocktail of bad US sub-prime loans, the financial-liquidity crisis, high commodity prices and soaring inflation buffeted the global economy.
Against a backdrop of quarter-by-quarter falls in the country’s economic growth rate, 2008 was more about rare economic highlights than milestones.
Special Author: Yiping Huang, Citigroup and ANU
China enters 2009 in a vastly different situation from what it was in a year ago. At the beginning of 2008, the biggest macroeconomic challenges were overheating and inflation. Now, they are a slump in growth and deflation.
This sea change within a matter of 12 months had no single cause. The People’s Bank of China (PBOC) continued to tighten monetary policy aggressively during the first half of 2008, including significant rate hikes and rapid currency appreciation, in order to control inflation. But global recession was probably a far more important contributor to the reversal of China’s macroeconomic trend. Since mid-2008, industrial production has decelerated sharply, power generation has collapsed, and even the growth of exports turned negative in recent months. The Purchasing Managers’ Index (PMI) already pointed towards a deep manufacturing recession in China.
Author: Aaron Batten
PNG had another interesting year in 2008. The first half of the year saw economic growth remain strong as the country continued to benefit from yet another boom in the price of its commodity exports. High resource prices underpinned a significant expansion in the manufacturing, construction and agriculture sectors. Towards the middle of the year, however, poor monetary responses to a prolonged growth in domestic liquidity, coupled with a continued strong external sector, meant that inflationary pressures began to increase, with inflation rising to 13.5 per cent in September 2008.
September, of course, also marked the onset of global financial crisis. Barring a couple of jitters on the PoMEX, PNG’s economy weathered the direct impacts of the crisis relatively unscathed. In large part this was because of the healthy supply of foreign exchange reserves and domestic bank liquidity built up over previous years which gave the financial sector sufficient flexibility to cope with any adjustment costs.
The flow on effects of the crisis have led to a large downturn in the price of many of PNG’s key commodity items which had been driving revenue and output growth. This has had an immediate impact on the Government’s fiscal position with the 2009 Budget predicting a 25 per cent overall decline in domestic tax revenue.
Special Author: Yoichi Funabashi, Editor-in-Chief, Asahi Shimbun, Tokyo
‘The magic is over.’
So said French Foreign Minister, Bernard Kouchner, referring to the financial crisis that originated in Wall Street and the battered global standing of the United States.
Under a formula of low interest rates and financial leverage, the US government and investment banks choreographed an asset-inflated housing-bubble boom, enabling Americans to go on a spending free-for-all on the strength of debt.
That alchemy no longer works.
The credit crunch spread from the financial arena to the automotive sector, along with discount stores and government, eventually hitting family finances hard and dragging the global economy into recession.
Special Author: Geoffrey Barker, Strategic and Defence Studies, ANU
The Australian Labor government’s first full year in office became a momentous political and economic challenge as it moved to deal with the impact of the deepening global financial crisis while seeking to advance national foreign policy and security interests. By year’s end it seemed inevitable that Kevin Rudd’s government would be judged primarily by its economic management over 2009-10.
But Rudd remained committed to expanding Australia’s role as an activist, if largely conformist, middle-power. Despite changes of emphasis, and new multilateralist initiatives, he left little doubt that there would be more continuity than change in Australian foreign and defence policies while the government’s economic management would be cautious, orthodox but consistent with giving a nudge to global big spending stimulatory economic policies.
Special Author: Yongsheng Zhang, Development Research Centre, State Council, and Renmin University, Beijing
The Chinese people had high expectations for smooth and fruitful year at the beginning of 2008 – the year of the Beijing Olympics, the 30th anniversary of China’s reform, and a number in Chinese culture signifying good luck and good fortune.
As it turned out, 2008 was a year in which there was as much bad luck as good. In February, southern China was lashed by a severe snow storm; in March, social turmoil in Tibet; in May, the devastating earthquake hit Sichuan; and the Olympic torch was met by protests in some Western countries.
The Olympics in August were a stand-out and government and land reforms were welcomed. But after the Olympics, the world was thrown into economic crisis, and China had to turn to fighting the rapid onset of economic recession. The poisoned milk scandal also took place.
These were no trivial tests of the achievements of 30 years of reform. The scale of China’s growth and its speed is without precedent in world history. But the question remains: how resilient to natural and social disasters is the new China ? And what further reforms are needed to assure a harmonious role in the world?
Special Author: Soogil Young, National Strategy Institute, Seoul
Lee Myung-bak, the candidate from the conservative Grand National Party, won the Presidency of the Republic of Korea on 17 December 2007, with an unprecedented margin over his main opponent. The landslide victory provided a strong mandate for him to undo most of what had been done by his populist predecessor, President Roh Muh-hyun.
Roh had sought to undo what he thought were the injustices that the engineers as well as the beneficiaries of Korea’s industrialization between the 1960s and 1990s had built into the economic and political system.
Roh’s favourite keyword to describe the economy was ‘polarization’, a phrase meant to highlight what he believed to be deepening divisions in the Korean economy and society: between big Chaebol businesses and small and medium enterprises; between the rich (whom he considered morally corrupt) and the middle class and the poor; and between the populous and dynamic greater capital region around Seoul and the vast but ‘hollowing-out’ countryside.
Special Author: Rod Eddington, CEO, J P Morgan Australia and Chair Designate ANZ Bank
Australia began 2008 hoping that the growing global financial crisis might pass it by. Our major trading partners in Asia were in better shape than their American and European counterparts and our underlying economy was sound. All this is still broadly true, but it is clear that the Asian economies in general and the Chinese economy in particular are not as ‘decoupled’ from the global economy as many thought. Australia has not been spared from many of the economic challenges other nations face as its Asian partners struggle with problems of their own.
The new Australian Federal Government under Prime Minister Kevin Rudd has worked hard at home and abroad to lessen the economic fallout following the global financial crisis. The Australian economy has slowed significantly and this foreshadows increasing unemployment in 2009. Keeping that increase as small as possible is a priority for businesses and governments alike.
Special Author: Josef Yap, Philippine Institute for Development Studies
The Philippine economy slowed down sharply in 2008. GDP growth in the first three quarters of 2008 fell to 4.6 per cent, compared to 7.5 per cent in the same period a year ago. The jump in the inflation rate following a sharp rise in food and fuel prices was the first big setback. Inflation averaged 9.4 per cent in the first 11 months of 2008 after recording only 2.8 per cent in 2007.
Another factor was the sharp deceleration in construction activity following a surge related to the 2007 elections and the initial implementation of President Macapagal-Arroyo’s ambitious infrastructure program. The US recession, which officially began in December 2007, was alsao a likely contributor to the slowdown.
The economy seems continue to slow further following the chaos in the global financial system and the recession in major economies including Germany, Japan, Singapore and Hong Kong that has followed. Key multilateral agencies are unanimous in the view that the Philippines will see lower economic growth in 2009. The IMF, the World Bank and the ADB all forecast growth around 3 per cent, or at most 3.5 per cent. Growth in 2008 is estimated at 4 per cent or a touch over. In 2007 it was well over 7 per cent.
Special Author: Pang Eng Fong, Singapore Management University
Singapore’s economy grew by 7.7 per cent in 2007. Growth was broadly based, jobs plentiful and inflation low. The official forecast a year ago was that growth would slow to around 5 per cent in 2008 as external demand would likely weaken. As it turned out, this forecast was revised downwards several times as economic conditions deteriorated in response to a rapid deceleration of external demand. Singapore’s economy, officially in recession having shrunk two quarters in a row, appears likely to end up with a growth rate of less than 2.5 per cent in 2008.
Singapore’s current recession is different from its two previous economic contractions in 2001 and 2003. In both periods, no synchronized global downturn engulfed both developed and emerging economies. In the current recession, recovery is likely to be modest and slow. The large fiscal stimulus packages in the developed economies, especially the United States, as well as those announced by China, Japan and other Asia Pacific countries will boost domestic demand and restore consumer confidence but they will take time. For Singapore, as for its neighbors, the deepening global recession will likely last well into 2009.
Special Author: Hadi Soesastro, Centre for Strategic and International Studies, Jakarta
Indonesia entered 2008 on a note of optimism. In the previous year, the economy grew by 6.3 per cent, better than its neighbours (with the exception of Vietnam and China). The government aimed at achieving 6.5 per cent growth in 2008. While, at the end of 2008, there are a great many anxieties about the impact of the global financial crisis on Indonesia and the region, the latest estimates suggest that Indonesia could still grow by 6 per cent in 2008. It could end up being a star performer in the region. This, the minimum growth rate to produce sufficient jobs, may be difficult to maintain in 2009.
Indonesia is an open economy, and must remain open. Although its banking system is much stronger than a decade ago, the economy remains vulnerable to a sudden halt and reversal of external financial flows.
Fortunately, the country faces this economic challenge with a much improved political situation at home. In 2008, Indonesia is entitled to celebrate a decade of democratization. It has undergone a remarkable political transformation. It successfully conducted democratic elections in 1999 and 2004 at the national level and, since 2005, has seen over 450 local elections take place without major incident. The fourth most populous country, home to the world’s largest Muslim community can also pride itself on being the world’s third largest democracy. Read more…