Sydney, Australia (PressExposure) February 17, 2009 -- The latest Westpac Asian Market Perspectives report suggests that while financial markets may have calmed down somewhat since late last year, the economic situation across Asia has been deteriorating at a bewildering pace. The report, compiled by the Westpac Economics team, suggests that the US-led recession is deepening and spilling more violently into other regions and that data over the last two months now shows global trade all but collapsed late last year. The casualties â and there are many â include all of the major Asian economies, which now face sharp contractions.
To make matters worse, weakness now also looks likely to extend well into 2010 as the major economies grapple with severe âbalance sheetâ recessions. What does this means for global growth? The bottom line is that world GDP is forecast to contract 0.1% in 2009 and grow just 2.2% in 2010. For highly export-leveraged economies the daunting task ahead is not only to absorb this massive hit but also reâorient growth towards domestic demand. Debtor nations face the added challenge of securing funding. Countries with fiscal problems face an even harder task as fiscal stimulus will be an essential prop to demand. Our Australian and New Zealand growth, interest rate and exchange rate forecasts have all been marked sharply lower.
Asia â challenging times
The scale of the trade contraction across Asia has many yearning for the âgood old daysâ of the 2001 slump. Itâs not quite a replay of the 1997/98 economic crisis as external finances are in better shape but export-led recessions will be unavoidable for nearly all and engineering domestic-led recoveries could be a challenge to long-held economic strategies in many countries.
Japan â facing a savage decline
The economic data flow out of Japan through the December quarter was nothing short of horrific â the scale and speed of the observed collapse in global export orders, shipments and industrial output was so breathtaking that the only reasonable comparisons come from wartime, the oil shock of 1973/74 or the Depression era. Exposure varies across key manufacturing sectors but all face savage declines.
China â stop or start?
Chinese GDP growth decelerated to a 6.8%yr pace in the fourth quarter. Various proxy measures â industrial production, electricity generation, trade and manufacturing indicators in particular â point to a more sudden stop in activity. Bank lending picked up in December, raising hopes that policy action is providing swift support.
United States â darkest hour in Q1?
US GDP contracted at its fastest pace in almost twenty-nine years in Q4. The good news is that this was not as steep as feared. The bad news is that Q1 looks worse. In truth, there is no good news. Consumers are in dire straits with household de-leveraging barely begun. Housing markets face at least two more years of pain and business investment is collapsing. Fiscal stimulus may staunch the bleeding and Q1 will hopefully be the âdarkest hourâ but a sustained recovery looks a very long way off.