ASIA is where the action is. The economic engine in the region is running smoothly and growth rates are faster than those in the West.
The corporate and financial sectors balance sheets are healthier. Intra-regional trade is on the increase, thus raising the growth prospects for the region this year even higher.
The London-based Economic Intelligence Unit says: "The economies are being boosted by rising demand in the OECD (Organisation for Economic Co-operation and Development), strong sales in emerging markets, particularly China, and faster domestic demand growth. All three factors look set to continue powering regional economies ahead during 2004".
The favourable external environment and strong domestic demand is expected to push up East Asia's growth to 6.1 per cent this year and 6.6 per cent in 2004. The risks to growth have receded as well.
While the growth rates are not near the levels seen before the 1997-1998 Asian financial crisis, the region is still expected to enjoy the fastest expansion rate compared with other regions in the world The red-hot Chinese economy, registering a GDP growth of 9.1 per cent last year, the fastest rate since 1997, has prompted some to caution of a slowdown. But others predict otherwise. There is still a lot of growth potential in the Chinese economy as development moves inland and into the interior.
The Japanese economy, after being in the doldrums for almost 13 years is attracting attention. The economy grew seven per cent on an annual basis in the fourth quarter last year. The Japanese sun is rising again, prompting Horst Koehler of the International Monetary Fund (IMF) to express confidence in Tokyo's growth prospects.
But the rapid growth rates in the region are not entirely new. The countries were hailed for their development and rapid progress by multinational organisations. A World Bank study in 1993 hailed the "high performing economies" in the region, including Hong Kong, Indonesia, Japan, Malaysia, South Korea, Singapore, Taiwan, and Thailand as the "East Asian Miracle".
These economies had accomplished in one generation what took many Western industrial economies centuries to achieve. This was no miracle but the result of hard work, pragmatic policies, planning and implementation. But the financial crisis of 1997-1998 turned the clock back, brought prosperity to a grinding halt and in a matter of days much of the hard work, progress and development eroded.
Today, the economies have moved on, having recovered from the crisis and the devastation it brought, and are now firmly on the growth path. The foreign reserves are at record levels, current accounts are in positive territory, interest rates are low, unemployment is low and there is full employment in some, inflation is checked and in Malaysia it is marginal.
The financial and corporate sectors are stronger and the foreign funds and investments are coming back to the region. The local business leaders are more confident about their domestic economies and equity markets reflect increased foreign interest. Twenty-one fund managers from the region gave a clear indicator of this to the second Finance Minister Tan Sri Nor Mohamed Yakcop.
According to the Asian Development Bank (ADB), seven countries — China, Indonesia, South Korea, Malaysia, Philippines, Singapore and Thailand — which account for 98 per cent of East Asia's total GDP, together grew by 6.4 per cent in the third quarter compared with 4.7 per cent on the second quarter. The fourth quarter figures are even more impressive. Malaysia recorded a growth of 6.4 per cent in the three months to December 2003 (and growth of 5.2 per cent for the whole year), Japan seven per cent (2.7 per cent for 2003), Singapore rose 11 per cent (1.1 per cent for the year) and China 9.9 per cent (9.1 per cent in 2003).
Malaysia, which pursued its own policies and was condemned by the world for its unorthodox policies, has emerged to register among the highest GDP growth rates. With fourth quarter growth the highest since the last quarter of 2000, it emerged as the third fastest growing economy in the region.
The broad-based domestic growth was also assisted by improvements in the international economic environment and especially in the markets of Malaysia's major export markets. The American, European and Asian economies are all picking up and the rising tide is lifting all boats.
There is ample cause for optimism for growth in the current year. Fund managers, analysts and economists are all revising their forecasts for Malaysia upwards even though Bank Negara has not provided fresh forecasts for the year.
Daniel Lim, Morgan Stanley's South East Asian economist, attributes improvement in domestic sentiments to efforts by Prime Minister Datuk Seri Abdullah Ahmad Badawi to overhaul the political economy. The Prime Minister has heralded significant and positive changes which among others include "efforts to dismantle the rent-based political economy, unwinding fiscal and government investment excesses, leaning towards a more balanced economic development path, establishing a workable coalition within the Cabinet and leveraging professional bureaucrats".
He is keenly aware of the need to steer Malaysia away from the "manufacturing export path to one that can truly leverage the untapped economic strengths of Malaysia". Fears that the Malaysian economy would be affected by the "hallowing out" of its manufacturing sector due to China's rise have been ill founded. China is seen as complementing Malaysia and, as the fund managers pointed out, Malaysia is proving to be a more efficient producer.
Then again, as Lim says, Abdullah "has shown significant focus, prior to and after being elevated to the Prime Minister's post, on pursuing structural development in the agricultural, rural and small and medium sized enterprises (SME) sectors — the sort of under-leveraged "second track" sectors that could help Malaysia lessen its dependence on the foreign direct investment-dependent "first track" sectors.
According to the London-based Financial Times, the "Badawi factor" which includes the push to deal with corruption, greater transparency and getting professionals to manage have had a positive effect on the economy and changed the perception of foreigners and instilled greater confidence in the country. As a result Malaysia's growth prospects for 2004 are even brighter.
Parent site: "Focus on Malaysia"