TheAsianCrisis

April 1999 The global economy was stunned by the Asian recession of 1998. Each quarterly report painted a gloomier picture. By the end of the year, it was clear that the Asian economy had collapsed. Country after country saw their economies recede from positive to negative growth rates. Only China appears to have avoided the crisis so far.

Many of the Asian economies had been considered to be modern miracles. For decades they had been growing rapidly, exceeding 10% annual growth in some instances. Four of the countries (South Korea, Hong Kong, Taiwan, and Singapore) were nicknamed the Asian Tigers to reflect the strength and endurance of their economic systems. Rapid growth entails some costs. Many Asian economies have severe pollution problems as well as social problems associated with unequal income distribution.

Given the current recession, the key questions now are: (1) how deep will be the decline, (2) for how long will the malaise last, and (3) to what degree will the Asian economic crisis affect Europe, the United States, and the rest of the world. Consumer and business confidence is naturally very low, and that can't help. During bad times, consumers generally try to save more, but that only makes the problem worse. It's called the paradox of thrift. Saving is not spending. When spending falls, production and incomes fall.

Japan and China are pivotal to the Asian outlook. They could either lead the continent to economic recovery or follow it to depression. Both economies are large and important enough to make a difference.

It's sometimes easy to confuse cyclical fluctuations and secular trends. The long-term prospects for Asia are still bright in the opinion of most economists. But the duration of the current crisis is a concern. Five of the eleven economies pictured below are now in the red zone. That means they would get a negative score for their cyclical performance in The World Game of Economics. If that trend continues for a sustained duration, they could pull the rest of the world down with them.

The picture above displays the movement of individual Asian countries from their 1987-1992 averages to their performance in 1998. Moving from right to left indicates slower growth. Countries far to the left have negative growth. Moving down the playing field indicates disinflation. Some countries now have deflation. All of the countries moved to the left and/or down in 1998 when compared to where they were during the period 1987-1992.

Annual Growth and Inflation for Selected Asian Economies 1987-92 and 1998

Country	% Growth 1987-1992	% Growth 1998	% Inflation 1987-1992	% Inflation 1998	Score 1987-1992	Score 1998
Taiwan	N.A.	3.7%	N.A.	2.1%	N.A.	10
India	5.9%	5.0%	12.2%	9.4%	4	6
China	9.5%	9.6%	12.5%	-1.3%	2	4
Singapore	9.8%	-0.8%	2.7%	0.6%	7	4
Japan	4.6%	-2.8%	2.3%	-0.1%	10	3
Philippines	3.3%	-1.9%	16.0%	9.9%	0	1
S. Korea	9.7%	-5.3%	8.5%	0.5%	4	-1
Thailand	13.1%	-8.0%	5.3%	2.9%	3	-1
Malaysia	10.5%	-8.6%	3.6%	3.8%	6	-2
Hong Kong	N.A.	-5.7%	N.A.	-1.7%	N.A.	-3
Indonesia	7.7%	-13.9%	9.1%	53.4%	5	-12

Sources: IMF. International Financial Statistics; The Economist (April 3rd - 9th, 1999)

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