However, in all probability Asia will be spared a prolonged period in the doldrums. Apart from the improvement in the global economic outlook the main reasons for this can be traced to the region’s relatively robust banking system, large currency reserves and current account surpluses, and low foreign debt.
What is striking about the current situation in Asia is the very marked gap in performance between the individual countries. Broadly speaking countries with a large and robust domestic market will see a marked slowdown in growth this year but they will be spared the economic contraction which will afflict the smaller export-dependent countries. As world trade stabilizes in the second half of 2009 we expect the economy to pick up across the region. For 2010 we are forecasting growth of 5.6%, double this year’s rate.
Given the dramatic slide in US imports and the importance of the USA as a sales market, the Asian growth model is set to change. Export momentum will be lower than before the crisis and trade surpluses will decline. In order to achieve strong growth in the future, the Asian emerging markets are rightly attempting to bolster domestic demand in the medium term. In the foreseeable future it is unlikely that the US will re-emerge as the source of such powerful demand and import growth.