Although low demand from the US and European countries slowed down growth in China and triggered a recession in Japan and Korea, consumer demand and especially investment in infrastructure and new technologies continue. In addition, the exposure of the financial sector to toxic assets seems to be much smaller than in the US and Europe. Fiscal stimulus packages will also support a fast economic recovery.
In international terms German GDP has taken a relatively severe knock of late. Among the industrial countries only Japan has fared worse. One of the main reasons for Germany’s poor performance in recent months stems from its heavy reliance on exports. Whereas in the USA the share of exports in gross domestic product stood at 13% in 2008, in Germany the figure was around 48%.
Specifically, China will benefit from ongoing strong domestic demand, buoyed by both consumers and the state. Japan is very well positioned for the upcoming shift in US and global spending away from the defense sector to new sectors like health and the non-carbon industry, and South Korea will soon see exports stabilize on the back of its low exchange rate.
In addition, low corporate and private sector debt levels by international standards and the sturdy development of the German real estate market suggest that Germany enjoys better prospects for a sustained recovery than other countries. Although picking up, German exports will not act as the economic engine as in previous upswings. With new borrowing rocketing, the government will clamp down on spending. Private consumption will remain a cornerstone of the economy, as job cuts will peter out and inflation will be tame.
Therefore the East Asian region will be one of the early beneficiaries of the coming economic turnaround.