Economic growth in reform-shy south Asia is expected to surpass that of the Tiger economies of east Asia this year as export-orientated countries reel from the global economic downturn, a top official at the United Nations Development Programme told the Financial Times.
Ajay Chhibber, the head of the UNDP in Asia Pacific and a former World Bank senior economist, said that growth in the east Asia region would be dragged down by the poor performance of countries like Thailand, Singapore and Malaysia. He warned that many of the so-called group of Asian Tiger economies could no longer pursue the export-led growth strategies of the past, and continue to prosper.
"There's something that I thought I would never see in my lifetime. For the first time, there is the possibility that south Asia may have higher growth than east Asia," he said in an interview.
Mr Chhibber forecast that China would grow by 7 per cent this year, India by 6 per cent, its neighbours by 5 per cent, but in Thailand, Singapore and Malaysia growth would slump to about 3-4 per cent. He expressed particular alarm about the dramatic drop in trade suffered by previously conflict-marred Cambodia, Laos and Vietnam.
The prospect of south Asian countries, many of whom have severe social deficits and challenging security environments, outstripping the performance of other emerging markets in Asia will surprise many. Where export-orientated economies have suffered sharp falls in demand for their products, countries like India - with its 1.2bn population - have been sustained by domestic demand less affected by the global financial crisis. Only about 17 per cent of India's Gross Domestic Product comes from exports; whereas in some countries in Asia exports represent more than 60 per cent of GDP.
Bangladesh, in particular, appears to have shown resilience to the downturn, with international buyers trading down to its garment exports, while its remittances flow has held up. Meanwhile, International Monetary Fund officials regard the stabilisation of Pakistan's economy with a $7.6bn rescue package at the end of last year as broadly successful.
The UNDP's regional head, who had a 25 year career at the World Bank, recommended that countries highly dependent on export-led growth needed to make a "structural shift" away from the old model as consumption in the West would never return to its previous highs.
"The export led model of growth was followed by Asia after the Asian crisis. East Asia took the lead, then south Asia was getting into the mix. This model has to change," he said. "We can't go back to the imbalances that we saw before. The level of exports before (is not going to return). The US consumer is not going to absorb that much products from the rest of the world."
He said many countries needed to follow China's lead by aggressively stimulating private consumption and also to take steps to boost intra-Asian trade. Currently, precautionary savings are high in the region because of inadequate provision of social welfare, for pensions, health and unemployment.
"We have social protection systems behind eastern Europe," he said. "Asia needs to step up in social protection in a major way."
Some economists are detecting early signs of recovery in Asia. Subir Gokarn, chief economist for the Asia Pacific region for Standard & Poor's, the rating agency, said emerging economies were showing signs of bottoming out and that their outlook was brightening. "The decline has been arrested," he said.
Copyright The Financial Times Limited 2009
