Correspondent's Notebook

Beating the ‘great recession’

13 March 2009

What started in the United States and spread to Europe and now to Asia has finally been given a name: “The Great Recession”.

By no less than the head of the International Monetary Fund Dominique Strauss-Kahn who not so long ago was sure the global economy would grow by at least a little bit this year.

Now he’s sure it will shrink to below zero – the worst performance in most of our lifetimes.

This week, Radio Australia’s business correspondent, Karon Snowdon, looks at the challenge for Asia in beating the Great Recession through leadership and cooperation.

Most of us already know what the shrinking economy means; jobs lost, wages cut or frozen, businesses closing, houses being repossessed.

Ever since the problems which started on Wall Street spread out to Main Street.

Things are certainly grim in the United States, in Europe, in the UK.

But here in Asia…how bad will it be?

That’s the big question and frankly I don’t think anyone really knows the answer.

This is a recession like no other.

The end of a giant consumer bubble in most parts of the world at the same time.

Its nothing like the usual contractions caused by policies to cooling down overheated economies.

Trade has slumped dramatically.

The flow-on effects are felt in export countries – directly in the case of Japan, Korea and China and indirectly in Australia and the other suppliers of raw materials or components.

India had hoped to be largely spared because of its big consumer base and small exposure to world trade.

But in the last three months of 2008 half a million jobs have disappeared and severe price falls have raised the prospect of deflation.

In Australia unemployment is at its highest for four years. According to the latest job figures there are 37-thousand fewer full-time jobs than at this time last year.

They’ve been replaced by almost 110-thousand part time jobs. For now companies are trying to keep staff by reducing working hours but at the same time their incomes are falling.

Smaller players aren’t spared – Cambodia has lost 30,000 jobs in the garment industry, its only significant export.

Tiny Laos has been hit by an import ban from Thailand – small biccies for Thailand, of huge importance for Laos, according to the UNDP’s Ajay Chhibber who hopes this wont become a trend and has called for more cooperation in Asia.

Economists say the governments which have the money to put into stimulous measures should do OK, they can ride out the worst during this year and expect recovery in 2009.

India probably isn’t one of them, along with Vietnam and the Philippines. The jury is still out on Indonesia.

That economy however might grow by just two per cent this year according to Richard Martin from IMA-Asia. – and that’s a good number when compared to others.

He says the size of the first half contraction will make a return to positive growth by the end of the year almost impossible.

The debate is raging in economic and policy circles about whether stimulatory spending by governments will work.

Remember the US administration has committed an astonishing 800 billion US dollars so far to save companies, to buy out bad loans and for infrastructure.

Its money it doesn’t theoretically have.

Some believe it wont work.

Others argue it has no choice because some companies are too big to fail – to do so in the banking sector would threaten financial stability while the likes of General Motors represent untold jobs.

It will be important for the president’s polices to work…the US is still the world’s biggest economy.

Asia’s 300 to 400 million people pulled out of poverty in the last decade of rapid global growth are depending on it.

Even more they’re depending on the governments of Asia to find other means of restoring growth that prevents the poor falling back.

As the UNDP’s Ajay Chhibber says its time for Asia to find its own solutions through better cooperation and become a major engine for the new world economy.