Asia’s Recovery and Macroeconomic Policy Challenges
Thursday, 22 April 2010
Dr. Jong-Wha Lee, Chief Economist of the Asian Development Bank (ADB), made a presentation about the economic recovery in Asia, possible risks to the recovery, and macroeconomic policy recommendations. He declared that Asia has already started to recover from the financial crisis. The ADB’s GDP growth projections for Asia showed a low in 2009, but 7.5% growth in 2010 and 7.3% growth in 2011. He then divided the region into countries, and GDP growth into its components. He showed that export-oriented markets such as Singapore, Malaysia, and South Korea were hit hardest by the crisis when trade collapsed and investment in these countries stopped. However, countries with large domestic markets such as China and Indonesia continued to attract investment, and still have positive investment. At present there is only mild recovery in external demand, so it cannot be depended upon as a source of recovery. Dr. Lee noted that Asian governments used substantial fiscal stimulus to accelerate recovery, and, like Western countries, they face the problem of unwinding the stimulus and shifting demand from the government to the private sector.
Dr. Lee also addressed concerns about inflation in Asia’s economic outlook. 2009 had an unusually low rate of inflation because Asia was operating below capacity. Inflation is expected to increase to 4% in 2010 as the recovery continues; inflation pressures are emerging, but still manageable. Regarding risks, Dr. Lee said that the largest risk to the recovery in Asia is the global economy itself, since Asia is export-driven.
The final portion of Dr. Lee’s presentation focused on macroeconomic policy. First and foremost, he claimed that it is essential to reaffirm sound fiscal and monetary policy. Macroeconomic policies need to adjust to the changing environment following the crisis. He praised Asian countries for achieving not only high growth, but high stability as well. He recommended that monetary policy should be coordinated with financial regulation and exchange rate rigidity should be reduced; exchange rates need to reflect market fundamentals to avoid disturbances. There should also be a gradual appreciation of currencies, as increased exchange rate flexibility is in Asia’s interest.
Finally, Dr. Lee encouraged policy coordination and regional and global cooperation. He asserted that the role of Asia will grow, and that emerging markets will have an increased proportion of world GDP. Cooperation is required to make the world economy stronger.