Risk is back in fashion. Those repositories of risk assets, emerging markets, are off to the races, with equities and even currencies pushed higher by inflows of foreign money. Perkiness is further buoyed by upwardly mobile forecasts for economic growth. Overall, emerging east Asia is expected to grow 6 per cent next year, roughly in line with 2008 and up from 3 per cent this year, according to the latest forecasts from the Asian Development Bank. Fund managers may be cheering, but Asia has flunked – at least so far – the longer term economic rebalancing that the crisis was supposed to bring about.
Yes, exports have plunged but imports have fallen further still; fittingly given the processing role of many Asian hubs and lower commodity prices. Hence Asian current account surpluses mostly widened in the first quarter of the year – to 9 per cent of gross domestic product among the export-reliant newly industrialised economies (NIEs) of Hong Kong, Korea, Singapore and Taiwan, according to the ADB. That compares with an average 5.3 per cent from 2000-04.
Meanwhile their balance of payments surplus, after adding the increase in capital flows, both portfolio and direct investment, has almost doubled to 8.2 per cent of gross domestic product for the NIEs, compared to their 2000-04 average. For Indonesia, Malaysia, the Philippines and Thailand their aggregate surplus grew even more, to 5.5 per cent, compared with a deficit of roughly the same magnitude in the previous quarter.