Macro aspects must be taken into consideration to ensure growth
momentum
By Dinesh Weerakkody
Another year of high unemployment and anaemic economic growth rates
has come and gone for the West, leaving many people to say 'good
riddance' to 2012. But will the situation improve much in 2013?
Therefore, it is vital to understand the macro aspects, which could
impact Asia’s growth, and to ensure its momentum. According to the
International Monetary Fund (IMF), Chief Economist Olivier Blanchard,
“low growth and uncertainty in advanced economies are affecting emerging
market and developing economies through both trade and financial
channels, adding to homegrown weaknesses.”
 Moreover, according to the recent projection by the Asian Development
Bank (ADB), the GDP growth of South Asian countries comprising
Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan
and Sri Lanka for 2013 have been reduced from 6.4 percent to 6.2 percent
while the growth outlook for 2012 has been cut to 5.3 percent from the
previous estimated 5.5 percent. In 2011, the region grew by 6.2 percent.
Nevertheless unlike before, the Asian region is better prepared for
currency and balance of payment crises than it was a decade ago, having
instituted wide ranging reforms, improved current account balances and
built up a protective buffer of foreign exchange reserves. Yet, high
levels of financial, trade and investment integration with the Western
economies leave no country immune to the debt woes in the West.
The European sovereign debt crisis for the second time in a decade,
has created economic turmoil for the world economy. While the European
Union (EU) economies struggle to design new austerity measures to meet
EU demands, the economic contagion continues to spread outside the
Eurozone. However, contrary to the past, the source of crisis is from
outside the Asian region. Thus, there are a number of potential and
economic vulnerabilities that raise serious concerns and need to be
tracked carefully by emerging economies in Asia.
The macro-economic difficulties for most economies of the West, once
again, will put pressure on the movement of short-term portfolio
capital.
Trade and investments
According to the latest IMF’s reports on the World Economic Outlook
ahead of the IMF-World Bank Annual Meetings 2012, advanced economies are
projected to grow by 1.3 percent this year, compared with 1.6 percent
last year and 3.0 percent in 2010, with public spending cutbacks and the
still-weak financial system weighing on prospects. Growth in emerging
markets and developing economies was marked down compared with forecasts
in July and April to 5.3 percent, against 6.2 percent last year.
Leading emerging markets such as China, India, Russia, and Brazil
will all see slower growth. Growth in the volume of world trade is
projected to slump to 3.2 percent this year from 5.8 percent last year
and 12.6 percent in 2010.The double dip recession in many developed
countries will therefore before long find its way back to the region
through a huge drop in trade, investments and tourism.
The increasing spill-over effects of the Western financial crisis
into the real sectors and its evolution into an economic recession,
combined with long term challenges posed by climate change and huge
volatilities in food and fuel prices have all converged to pose a
challenge for the Asian region.
Asian economies
In most of the Asian economies, therefore, the state will remain the
single most important organising unit of political, economic and
security affairs but will confront fundamental tests of effective
governance. The first will be to benefit from, while coping with,
several facets of globalisation.
The second will be to deal with increasingly vocal and organised
public. The elements of globalisation, greater and freer flow of
information, capital, goods, services, people, and the diffusion of
power to non-state actors of all kinds, will challenge the authority of
virtually all governments. Hence, this depicts a unique opportunity for
all emerging economies in Asia to re-orient economic growth towards a
long-term development path that is inclusive and politically
sustainable.
The writer is a senior company director.
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