All pundits now agree that we’re in a global recession. But views on the depth of the economy’s dive remain divided. The IMF has yet again lowered its global growth forecast for 2009, this time to a paper-thin 0.5%. Others are bound to follow. Conditions are bad, but are they really that bad?
Bellwether trading nations give clues to the answer. East Asia, the world’s international trade hot-zone, was thought by many to be immune to the global malady. But the inoculation doesn’t seem to be working. Consider Singapore, where trade makes up a staggering 280% of total output. Non-oil exports fell 2.6% through 2007, but that was mild compared with last year’s 24% plunge. What is more, the drop occurred mostly in the latter half of the year. Fourth-quarter exports fell 64% at annual rates, leaving December activity 21% below the average for 2008. Together with slumping new orders, this virtually assures another double-digit annual decline through 2009.
The effects are magnified by trade’s growing share of GDP, but are quickly spreading to the rest of the economy. Business sentiment now rivals the lows of the 1998 financial crisis. A sharp fall in fourth quarter GDP lowered growth for 2008 to just 1.2%, and set the stage for a 4%-5% decline this year – Singapore’s worst year ever – in spite of a massive increase in public spending.
Is Singapore alone? We could only wish. Taiwan’s exports are now 42% below year-ago levels, larger and more dramatic than the early-1998 and 2001 contractions. Total output slipped into the red in the third quarter of 2008, due also to a simultaneous softening of domestic demand. Current momentum does not point to a positive overall result for 2009.
Conditions are similar in South Korea, another key regional trade powerhouse. A late-year collapse put exports down 17% on a year-to-year basis, and like the other trade heavyweights, the drop is in full flight, with no current signs of easing. From a cyclical peak last April, industrial production is down almost 16%, already matching the 1997-98 drop, but with no sign of easing. After tepid gains for three quarters, economy-wide output in the final three months of 2008 contracted by 5.6% at quarterly rates, enough to drop year-on-year gains deeply into the red.
Hong Kong is also on an export-led downward trajectory. A moderation in trade activity through 2008 turned into decline by year-end, and the resulting deterioration in the trade balance put Hong Kong in recession – back-to-back declines in GDP in the second and third quarters of 2008.
China, the region’s trade behemoth, is also suffering. Exports are currently down 2.8% compared with year-ago levels. The decline has been somewhat offset by weaker imports, partly a result of sharply lower commodity prices. But lower imports also reflect deteriorating industrial production. Add it all together, and China’s GDP is suffering. At 6.8%, fourth-quarter year-to-year growth may seem robust, but its swift fall from double digits implies recent quarterly growth closer to zero.
The bottom line? Current conditions among East Asia’s big traders suggest that the economic shock-talk has yet to run its course. Analysts will continue living hand-to-mouse trying to keep up with developments in a year that will test the mettle of international traders the world over.
