Rapid and focused recovery from recurrent economic crises have proven the resilience of East Asian economies. Historically, the trade-oriented growth strategies adopted by Asian economies allowed Asia to enjoy the sustained outperformance in economic growth until the onset of the Asian crisis in 1997. The average economic growth rate of East Asia (Indonesia, Korea, Malaysia, Singapore, Thailand and Vietnam) and China during 1980-1996 was 7.33 per cent and 10.11 per cent respectively in comparison to 2.78 (2.72) per cent of the remaining world’s industrial economies. The fast-growing East Asian economies were jolted by the Asian currency crisis triggered by capital flights from the region in 1997. As a result of the crisis, the growth across East Asia dropped to -4.95 per cent in 1998. However, it bounced back to 5.58 per cent in 1999, making the recovery V-shaped. This growth following the crisis was substantially higher than 3.25 (3.18) per cent experienced by the world’s industrial economies. The sustained growth at similar levels of East Asian economies also confirms the bounce back was not temporal.
Figure 1: Economic growth rate (%)
East Asia: Indonesia, Malaysia, Korea, Singapore, Thailand and Vietnam
A decade later the same Asian economies weathered the Global Financial Crisis (GFC). The GFC resulted from excessive risk taking and too lax regulation on subprime mortgage lending in the US during 2007-early 2009, with economic growth of the world’s industrial economies and the US in 2009 being respectively, -1.67 (-2.54) per cent and -3.43 per cent. In contrast, the growth of China and East Asia was 9.4 per cent and 1.46 per cent respectively. The quantitative easing, referring chiefly to injecting large amount of money to banks and Wall Street with low interest rates, helped recovery of the US economy. However, without the resilient growth of China and East Asia working as a cushion, the dropping global economy could have been accelerated.
The recently announced Asian economic growth figures again confirms the resilience of Asian economies to economic shocks. This time, and yet another decade on, in response to the health and economic crisis led by the COVID-19 pandemic. China’s GDP grew by 3.2 per cent in the second quarter of this year, compared to a year ago. Such positive growth is a much better performance than analysts’ expectations and a substantial bounce from the first quarter’s contraction. Recent data also show some signs of recovery, evidenced by rising in trade and manufacturing in June 2020, according to two sets of surveys reported by CNBC. But while no-one would be certain of a V-shaped recovery, growth of East Asian economies (with a few exceptions) amid the pandemic, has outperformed the US and EU. Vietnam has exceptionally maintained growth without contraction during the virus-led global crisis. Moreover, the East Asian economies are expected to continue their slow and steady recovery trajectory highlighting a resilience and confidence yet to be experienced elsewhere.
Figure 2: Economic growth amid COVID-19 Pandemic (%)
Note: US data is annualised data of growth from the previous quarter (i.e. approximately -8 per cent in Q2).
While East Asian economies are exemplifying recovery leadership, it is important to acknowledge that no great recovery has been seen in the tourism or the student-exports sectors—both of particular interest for the Australian recovery and resilience strategies. Although these sectors may not shift substantially until such time as the world has a successful vaccine and cross-border restrictions are eased, Australia will continue to seek mutually beneficial linking strategies. Resiliency and sustained growth of Asian economy is crucial for Australian growth and reducing unemployment rate. Australia’s growth in the second quarter 2020 is -7.0 per cent and unemployment rate reached to 7.4 per cent. Currently, four (11) out of top five (15) Australia’s trading partners are in the Asian region and 66 per cent of Australia’s total trade occurred with countries of the Asia region, which is far more than those with EU and America. Furthermore, the relationship between Australia and Asia is expected to be more deepened in the future than now. The recovery of Asian economies from the pandemic recession is essential to Australia economy more than any time, where the eruptions of second wave of COVID-19 including Victoria is expected to prolong the recession.
Australia will pursue this engagement course not simply because of geographic neighbourliness but because the Asian economies outline above confirmed their resilience to crisis as supported by the World Bank’s prediction that four out of the top five global economies will be in Asia by 2024 and Asian economies will exceed the combined economies of the Americas and Europe by 2030.
Dr Byung-Seong Min and Dr Anne Cullen, Department of Business Strategy and Innovation and members of the Griffith Asia Institute.