What can we expect from Asia’s policymakers in 2012?

Donough Foley takes a brisk look round the region at the problems facing Asian decision makers

asia bamboo

The possibility of a protracted European recession is making the probability of modest growth in emerging Asia look even sweeter, though the coming year will not be an easy one for the region’s policymakers.

The International Monetary Fund recently cut its forecast for China to take account of a weaker export environment, but this still represents annual GDP growth of 8.25%. IMF is also predicting slightly slower growth for Asia’s developing economies in general in 2012. While the expected 7.5% growth is rapid by global standards, we can expect it to focus Asian governments’ attention on mitigating the effects of sluggish domestic growth and weak external demand.

China, for example, appears to have suitable policies and sufficient monetary reserves to help it avoid inflation and high interest rates as its economy slows and the housing market cools – and its change of leadership this year is not expected to derail this. However, if global conditions deteriorate, it could need to introduce stimulus measures such as tax cuts and fiscal incentives to encourage consumer spending and corporate investment, support small manufacturers, and protect the most vulnerable.

Indonesia is looking strong as financial sector reforms pay off and infrastructure spending is boosted with the passing of the recent land acquisition bill. However, moves to limit sales of subsidised fuel to public transport vehicles, businesses, and motorbikes from April may drive up inflation as private car owners are forced to spend more on fuel. Social unrest, particularly unwelcome in the run up to the 2014 elections, is also feared.

Malaysia is entering 2012 (an election year) in a good position, with a sound banking system and high foreign reserves. The nation has relatively high public debt, however, and would benefit from reforms in education, more spending on social safety nets, and a broader tax base, according to IMF, but its plans for major private sector-led investment projects have the potential to drive growth.

Elsewhere in Asia, Thailand is still reeling from last year’s disastrous floods, Vietnam is tightening fiscal and monetary policies, and India is suffering as inflation, capital outflows, allegations of corruption, and a lack of policy developments have dented consumer and investor confidence. With memories of the 1997-98 financial crisis still fresh, governments throughout Asia will be keeping a weather eye on the global economy and looking to strengthen domestic demand and intra-regional trade and financial integration to provide some measure of protection against external shocks.

Donough Foley is the vice president of government and regulatory affairs, Asia Pacific at Philips

No comments

Add yours