How will the Asian Economies respond to a global slowdown? (The Economist)

Asia’s economies

Claws or jaws

Asia’s economies can weather a Western slowdown—but not prevent it

Aug 27th 2011 | HONG KONG | from the print edition

IN THE English-speaking world, people escape from frying pans into fires. In Thailand, the proverb is couched differently: people are said to escape from tigers only to be eaten by crocodiles. The Thai economy, like many in Asia, sprang free from the great recession surprisingly quickly. This year the bigger threat has been the widening jaws of inflation. With that in mind, the Bank of Thailand raised interest rates on August 24th for the ninth time since mid-2010. But it was a split decision. The economic woes of America and Europe have darkened Asia’s mood. Some can again hear the tiger’s growl.

After last year’s swift recovery from recession, policymakers in developing Asian countries congratulated themselves on the resilience of their economies. Their docile banking systems, high saving rates and hoards of foreign exchange shielded them from the worst of the financial chaos. Their efforts to tighten fiscal and monetary policy before the crisis struck gave them room to loosen up in response, as exports collapsed and confidence evaporated. In April 2009 the Thai central bank cut rates to 1.25%—lower than in most Asian economies—alongside a fiscal push worth 3% of GDP. Emerging economies were hit harder than optimists expected, but responded better than pessimists feared.

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