Only China and India doing well
TO SOUTH AFRICANS still reeling from the news of a deeper-than-expected recession, the economics news out of Asia might seem enviable. It was reported recently that Japanese factory output jumped, Chinese manufacturing output expanded and India grew faster than expected in first quarter 2009. But dig a little deeper and it’s clear all isn’t well in Asia. In fact, some economies are in dire straits indeed. And others, though growing, have lost a major amount of momentum against previous years.
Let’s start with Japan. The headline news at end-May – that Japanese factory output had jumped by 5,2% in April – sounded good, but that increase was from the previous month. Compared with a year ago Japanese industrial production was still down in double digits. That’s also the story with Japan’s GDP, which was down 15% in the first quarter of this year.
The Japanese economy is one of the world’s major “surplus economies” – which means it runs a trade surplus with the rest of the world. Though Japan’s success until the end of the Eighties was built on this exportled growth model, the Japanese economy has hardly been a model to follow since the bubble burst in the Nineties and has been especially hard hit by the global recession due to its reliance on exports.
China – the world’s leading surplus economy – is still growing, despite a precipitous plunge in its exports. China’s economy grew more slowly than usual over the first quarter and joblessness increased. However, fairly strong investment and consumer spending helped prevent falling exports from dragging down economic output even further. China’s gross domestic product was 6,1% higher in first quarter 2009 than a year earlier. First quarter growth rate compared with a 6,8% growth rate in fourth quarter 2008.
China measures growth on a year-onyear basis and not on the quarter-on-quarter, seasonally adjusted and annualised basis that’s the norm in countries such as the United States and South Africa. On a quarterly annualised basis, the picture in China looks different, with growth actually accelerating in the first quarter from the fourth quarter.
It’s important to note China’s economic growth rate is falling from stratospheric double-digit levels and that, even though the rate is still comfortably positive, the fall in growth has brought pain with it to Asia’s exporting giant. Millions of workers have lost their jobs in factories manufacturing goods for export. Some reports even put the number of newly unemployed workers at 100m.
Still, China’s growth rate has come in higher than some had expected, given its extreme reliance on exports. Reasons for its better-than-expected performance include a massive infrastructure-spending programme by its government and measures to spur domestic consumption. Some commentators have been sceptical about the sustainability of China’s growth rate in the face of weak global demand, saying there are limits to the Chinese state’s largesse and that there’s a danger of over-investment taking place and overcapacity developing.
Other Asian surplus economies have had a far more miserable time of it than China. As the graph shows, the economies of Singapore, South Korea and Thailand recorded significant falls in GDP in fourth quarter 2008. The International Monetary Fund says GDP in emerging Asia (excluding China and India) plummeted by no less than 15% on a seasonally adjusted and annualised basis in final quarter 2008, with the IMF forecasting an average decline for that category of Asian countries of 2,9% for this year.
India is a country less dependent on exports: in fact, it’s a deficit country. But its growth rate has surprised on the upside. India’s economy grew 5,8% in the first three months of this year compared with the same period last year. Though that’s a sharp decline from the 8,6% growth rate in first quarter 2008 economic activity in India came as a welcome surprise to those watching for the green shoots of recovery globally.
India was helped by a strong construction sector – again demonstrating the importance of infrastructure spending in keeping economies going during recession. It was also helped by positive growth in agriculture, which turned around from contraction in the previous quarter.
On balance, Asia (excluding China and India) is in dire straits. China and India are growing stronger than expected, helped by infrastructure spending.
Chinese factory workers have lost jobs.