Asia’s Economic clout Post-Global Recession !

The Asian economies have come out stronger than the western countries in the face revival period witnessed over last one year after witnessing a huge impact of global recession.

The global recession has ensured an actual shift in over-all economic power from western region to the emerging eastward economies. No doubt that the Asian countries always had an added advantage over their western counterparts, over the last few years, in terms of their fast growing and developing economies…

But it was none other than the big crisis witnessed across the globe which heralded an absolute shift in momentum and economic clout in favor of emerging economies from the US and Western Europe.

The scenario that has emerged post-crisis is a peculiarly shift in the flow of excessive liquidity from current account surplus economies (like China) to make good the massive deficits in current accounts of hard hit recession economies from western economies (like the US).

China is the world’s biggest holder of forex reserves to the tune of whooping $2.4 trillion. This all while the US is struggling with the ballooning current account deficit on the back of massive stimulus measures announced during the global recession. China over took Germany to become the world’s biggest exporter. China is all set to overtake US to become the world’s largest economy by 2025 and then India few years later !

According to an article on The Economist, the economic clout of Asia has risen significantly after witnessing the global recession. The article further highlights its view on following aspects:

1. The world’s economic gravity is moving towards eastward.
2. China looks good to become world’s biggest economy by next decade.
3. Asia comes out as an important destination for bankers and businessmen.
4. In Asia, the China’s growth in share of output is offset by the decline in Japan.
5. Asian central banks hold two-thirds of all foreign-exchange reserves.
6. The bulk of private-sector wealth still lies in the West.
7. Asian currencies still make up only 3% of total foreign exchange reserves.
8. GDP figures converted at market exchange rates understate Asia real expansion.
9. In PPP terms, 3 of the world’s 4 biggest economies (China, Japan & India) are Asian.
10. Western firms are more interested in Asia’s capital spending than its consumption.

The ailing western economies got further deteriorated by the impact of the great recession. However, even Asian economies were not immune to this global crisis and suffered a period of sharp slowdown.

But, what could have played out well for the Asia is that this crisis ensured dwarfing the size of selected western economies like US and Western Europe and at the same time a stunning and quicker recovery in the Asian emerging economies from the face of global impact.

In effect, this could have resulted in diminishing economic clout for major developed economies as compared to pre-crisis years, as against higher role of emerging economies with sustained growth and momentum coming out from the financial crisis. It is like the economic ‘base’ of developed countries has narrowed in favor of broadened and sustainable Asian demographics.

One factor which could have saved the Asian economies after the financial crises is the inherent strength of their own financial system itself. The government’s restraint to cut excessive spending coupled by the engines of structural growth has ensured a check on the debt-to-GDP ratio of economies from Asian countries.

Take, for instance, a closer look at the monetary policy of the Indian Central bank’s way of dealing with the crises provides enough signs about the implementation of strict norms and standards.

The RBI lowered the interest rates during the global slowdown in order to give impetus to the economy in form of increased spending by the public on lower base of interest rate regime. At the same time, RBI also ensured tightening of credit in the more speculation-oriented industries like Real Estate.

The real-estate sector which was sustaining higher property prices even during the recession, over and above the existence of over-supply dynamics, led the RBI to tighten the flow of speculative money in this premium sector.

In an another report by the Economist Intelligence Unit (EIU), a leading research and advisory firm, said India is the second largest economy after China, but is all set to overtake the giant dragon in growth pace by 2018. The agency has estimated India’s growth on an average of 8% over next five years.

Undoubtedly, Asia is emerging as a strong force to reckon with. What’s your say?