The sight of French President Nicolas Sarkozy running to Beijing to solicit funds to save the eurozone summed up what for some was the economic story of 2011 – Asia’s boom versus the West’s gloom.
Coming after some regional nations were forced to go cap-in-hand to the International Monetary Fund for bailouts amid the 1997-98 Asian financial crisis, the irony was not lost on observers.
As 2011 draws to a close with the US recovery barely at a trot, Europe staring into an economic abyss and even Brazil – once a member of the high-growth emerging club – facing possible recession, Asia is a beacon of hope.
Its economic emergence has also brought new diplomatic clout, with President Barack Obama very publicly shifting Washington’s foreign policy focus towards the region at two summits in November.
President Obama used the APEC summit in Hawaii to propel ambitious plans for the world’s largest free trade zone, the Trans-Pacific Partnership. Twelve of APEC’s 21 members pledged to join the talks, including Japan, the world’s third-biggest economy.
The GDP growth numbers tell a story of a two-track global economy divided between an emerging East and declining West.
Eurozone woes so far have not hurt Asia’s export-reliant economies as severely as the 2008-2009 US sub prime mortgage crisis that sharply reduced global trade.
But analysts warn that Asia’s success cannot be taken for granted heading into 2012, especially if Europe falls into recession.
The two powerhouses of regional growth, China and India, were showing cracks by the third quarter of 2011 as export markets faltered, domestic demand softened, debts mounted and production slowed.
Japan struggled to recover from its March quake-tsunami disaster and Thailand’s output drowned in rising floodwaters. Hong Kong, Singapore, South Korea and Taiwan all reported weak second-half figures.
“The main strength of Asia has been financial. Its banks are sound and aren’t laden with extreme levels of bad debt,” said HSBC Co-head of Asian Economics Research Frederic Neumann.
“There has been a credit boom across the region which fuelled economic growth. In that regard Asia’s resilience is somewhat artificial.”
China’s deep fiscal reserves drew a stream of high-level visitors including Mr Sarkozy to Beijing this year to try to persuade the authorities to contribute to the European bailout fund.
But growth in China, the world’s second-largest economy, is expected to have slowed to 9.2 per cent in 2011 compared with the blistering 10.4 per cent set in 2010, according to state-run think tank Chinese Academy of Social Sciences.
The academy projects growth to slide to 8.9 per cent in 2012, its lowest point in more than a decade. Analysts such as Dong Tao of Credit Suisse are however expecting no more than eight per cent – uncomfortably close to the seven per cent minimum the government says is required to maintain social stability.
Mr Neumann said he believed China was heading for a “soft landing” in 2012, but was more cautious about Beijing’s ability to sustain its credit-fuelled growth into 2014-2015. The same applied for the region as a whole, he added.
“The region’s growth is to a large part dependent on rapid credit expansion. Sceptics would question whether Asia is experiencing its own credit bubble similar to what the West went through three or four years ago,” he said.
Analysts said the main risk of a “hard landing” in 2012 was in India where growth slipped to a two-year low of 6.9 per cent in the latest quarter, hit by a series of interest rate hikes that have done little to curb high inflation.
The government cut its growth forecast for the fiscal year to March 2012 to 7.3 per cent from an original nine per cent – still a pace any developed economy would envy but far below the official 10 per cent target set to tackle India’s grinding poverty levels. In Japan, GDP shrank by an annualised 2.1 per cent in the June quarter after the March 11 quake and tsunami and the nuclear crisis at Fukushima.
The catastrophe shattered crucial component supply chains, forcing companies to shut down factories, slowing output and exports as the country tipped back into recession.
Producers raced to restore output more quickly than expected, and rebuilding efforts led to an annualised six per cent jump in July-September GDP.
The Asian Development Bank said this week that trade between regional nations and rising domestic consumption fuelled by fast-growing middle classes would shield the region from the worst of the global fall-out.
Financial systems in Asia had been “little affected” by volatility in the credit markets and were keeping the investment pipeline liquid, it said in a report.
A defence against trouble in Western markets lay in “increasing intra-regional trade and financial integration, and expanding links with other emerging economies”.