- The ASEAN economies faced with a severe negative impact from global economic downturn that resulted in foreign trade reduction as in NIEs economies. In the first quarter, the Vietnamese economy expanded by 3.1 percent (YOY) compare to 5.6 percent in the previous quarter and 7.5 percent in the first quarter of 2008. The Indonesian economy expanded by 4.4 percent, decelerated from 5.6 percent in the last quarter and 6.7 percent in the same quarter last year. While, the Malaysian economy is forecasted to contract by 4.0 percent compare to the expansion of 0.1 percent in the previous quarter and 7.1 percent in the same quarter last year. The Philippines’ economy is likely to encounter with GDP contraction for the
first time since 1998. Export downturn of ASEAN economies was largely attributable to the decline in manufacturing production, reflecting the spillover from global economic recession. The value of non-oil export of ASEAN economies (Malaysia, Indonesia, the Philippines and Vietnam) decreased by 24.9 percent in the first quarter. Industrial production index of each country continued to fall although the governments of ASEAN countries introduced the economic stimulus policies both in fiscal stimulation by spurring government expenditure and monetary stimulation by lowering interest rate.
2.1 The world economic outlook in 2009
Economic indicators in major countries indicated that the global economy will be in stabilizing process with tentative signs of recovery and likely to bottom out in Q2 and Q3. The expectation of economic recovery in the latter half is bolstered. On average, the global economic condition in the second half will be better than in the first half.
At the end of Q1 and in the early of Q2, economic indicators in major economies pointed out that the global economic activity is heading to stabilization process. In particular, leading indicators in the US and China pointed to a slower pace of economic contraction which is contributed by massive fiscal and monetary stimulation. However, Euro zone and Japan posted only little signs of recovery. The key development can be summarized as follows:
- The US: while most of indicators continued its downward trend in the first quarter, consumer confidence index and manufacturing activity substantially improved and is likely to bottom out. Consumer confidence index rose from its historic low of 25.3 in February to 39.2 in April. The improvement of confidences will accommodate and raise the efficiency of stimulation measures. However, the impetus of recovery remained fragile and the process of recovery can be protracted and volatile as witnessed by the
- China: ISM index rose for 5 months in row to higher than 50 for the first time in April to 50.1, indicating the upturn of economic activity. All sub-indexes for output, new orders, employment and quantities of purchases returned to expansion territory for the first time since July 2008. Consumer confidence declined but at a slower pace of an average 0.49 percent in the first quarter, compare to that of an average 2.2 percent in the last quarter of 2008. Investment in factory and real estate picked up from 28.6 percent in the first 3-month to 30.5 percent in the first 4-month, indicating an accelerate rate of investment expansion. These improvements were largely contributed by a massive fiscal stimulus package and credit extension by state banks..
- Euro zone: Economic confidence index picked up for the first time in 11 months, from 64.4 in March to 67.2 in April. PMI index for manufacturing and services showed the largest increase, from 33.9 and 40.9 to 36.8 and 43.8 over the same period. Meanwhile, export increased by 5.8 percent in February. The ECB
- Japan: PMI index increased for 4 consecutive months to 41.4 in April, the highest level since October 2008. Industrial production index started to pick up by 1.8 percent, after its 5 consecutive months contraction. Export showed a sign of recovery in March but still lower than that of in the same period last year by around 35 percent. Inventory declined for 3 months in row by 3.3 percent. In addition, Japanese government lunched additional stimulation package worth 15.4 million Yen (153 billion USD) to revive the economy from recession.
- NIEs: Exports to US and China in March, expanded 26.7 and 16.3 percent respectively, compare to the previous month.
The world economic outlook for 2009
The world economy in 2009 is forecasted to contract by (-2.0)-(-1.5) percent led by the sharp contraction of advanced economies. With the supporting of massive fiscal and monetary stimulus measures, the global economic condition is likely to improve in the latter half of 2009. The recent positive adjustment of leading indicators has bolded the confidence that the major economies will bottom out in the second or third quarter of 2009 and gain its momentum afterward. However, there are some downside risks to advanced economies to cause the process of recovery to be protracted, in particular, the massive and rising layoffs, de-leveraging in private sector, wealth destruction as well as strong and continued private investment contraction. Among the major economies, the US and China are likely to be the first economies out of recession due to massive fiscal and financial stimulation, while Japan and UK are likely to be the laggards. In addition, the recent signs of recovery remained fragile and their momentum in the rest of 2009 will be largely depend on stimulus measures in major countries. In addition, several countries including the US are likely to be more cautious about toxic assets caused by economic contraction and adverse feedback loop of excessive easing monetary condition. In this respect, the synchronized and self-reinforcing global recovery will be delayed until housing market condition, confidence, labor and credit market condition, and business profit are sufficiently improved as well as saving rate become more stable. The outlook for the remaining of 2009 can be summarized as follows:
- The major industrialized economy is forecasted to contract by 3.8 percent compare to an expansion of 2.7 percent in 2008. The US economy, in the base case scenario, is forecasted to contract further but at a slower pace of 1.7 and 1.3 percent in the second and third quarter before picking up by 1.7 percent in the last quarter. However, given recent improvements in leading indicators and financial
-Euro zone is likely to face with prolonged recession than the US due to the contraction of external demand, the rise in inventory accumulation without a clear sign of significant reduction and, high and rising unemployment that reached 8.9 percent in March. Nevertheless, problems in housing market are less serious than in the US and UK while business sectors are less reliance on debt market. With massive policy measures that have been taken and better prospects in export markets as well as currency depreciation, the pace of contraction is likely to slow down and the turning point to recovery can be expected in the last quarter of 2009. Against this background, the Euro zone economy in 2009 is likely to contract by 4.2 percent.
-The UK economy is likely to contract by 4.3 percent in 2009, due to high and rising unemployment, high leverage both in private and household balance sheets, and heavy reliance of economic structure on financial services. However, supported by quantitative easing that has relief tight credit condition and the British Pound depreciation that will support net trade, the sluggish recovery is likely to emerge at the end of 2009.
-Japanese economy is likely to contract by 5.0-6.0 percent. Without serious problems in financial sector, but taking into account that trade has been the biggest drag on Japanese GDP growth (contributed about five-sixths to 3.2 percent contraction in Q1) and the fact that they are expensive manufacturing goods exporter, the significant turnaround of economic activity is less likely without synchronized global recovery.
-Growth in Asia is forecasted to slow down substantially, due to the sharp slowdown in China and India, the contraction of advanced economies in Asia (NIEs) and other export-dependent ASEAN countries. Growth in China and India is forecasted to slow down to 6.5 percent and 4.8 percent respectively compare to that of 9.0 percent and 7.3 percent in 2008. Supported by massive fiscal stimuli, robust credit extension and better global demand condition in the second half, Chinese economic recovery is expected in the second quarter.
-NIEs will contract by 5.6 percent compare to the expansion of 1.3 percent last year. With their high external exposure, Singapore and Taiwan are likely to contract by 8.5 percent and 7.7 percent respectively while Korean economy is likely to contract by 3.5 percent due to the tight credit condition, high leverage consumer and business sectors as well as export contraction. Growth for ASEAN-4 is forecasted to be flat, as the Thai and Malaysian economies contract while growth in Indonesia and Philippines tends to slow down substantially to 3.0 percent and 0 percent respectively.
- Latin America is forecasted to experience with a contraction of 1.5 percent compare to the expansion of 4.2 percent in 2008, due to the decline in capital flow and tighter external credit condition. In particular, growth rate for Brazil, Mexico Argentina, Chile and Columbia is forecasted to be in
negative territory. Africa and Middle East are expected to experience with a marked slowdown from 5.2 percent and 5.9 percent in 2008 to only 2.0 and 2.5 percent in 2009 due to the decline in demand and price of primary commodities as well as the slowdown in capital inflow. In addition, with balance of payment crisis in some countries, Eastern Europe and CIS economies are likely to experience with severe contraction in particular Russia and other Baltic countries.