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RecessionProofingAsia|TheDiplomat

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Recession-Proong Asia
How ready is the region to withstand future economic shocks?
By Anthony Fensom
October 02, 2015

Asiaseconomicresilienceissetforsomemoreseveretests,includingthethreatofhigher
U.S.interestratesandanotherChinashock.ButaccordingtotheWorldEconomicForum
(WEF),theregionneednotlooktoofarafieldinlearninghowtostrengthenitselfforfuture
challenges.
InitsGlobalCompetitivenessReport20152016,theWEFrankedSwitzerlandtopforthe
seventhconsecutiveyear,withitsstrongperformanceinall12assessedcategorieshelping
explainitsresiliencetotheglobalfinancialcrisisandsubsequentshocks.However,Asias
leadersretainedtheirpositionsfromlastyear,withSingaporerankedsecond,Japansixthand
HongKongseventh,whileTaiwandroppedaplaceto15th,NewZealandgainedonespotto
16thandMalaysiaadvancedtwoplacesto18th,whileAustraliaimprovedanotchto21st.
AccordingtotheSwitzerlandbasedorganization,Singaporebeateveryoneapartfromits
Europeanrivalforthefifthstraightyear,withtheSoutheastAsiancitystatescoringhighlyfor
itsefficiency,qualityeducation,infrastructureandmacroeconomicstability.However,a
relativelylowrateofworkforceparticipationbyitswomen,whereitrated75th,wasmarked
asanareaneedingimprovement.
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LikeSingapore,Japanwasalsourgedtomakeitswomenomicspoliciescounttomake
betteruseofitsfemaletalent,whereitranked83rd.Theworldsthirdbiggesteconomy
scoredhighlyforitsexcellentinfrastructure,ahealthyworkforceandastrongecosystemfor
innovation,whileitsmacroeconomicenvironmenthasimprovedduetothereturnof
moderateinflation,akeygoalofAbenomics.
LowerrankedChina(28th)couldlearnmuchfromitsspecialadministrativeregionofHong
Kong,whichplacedseventhforthethirdconsecutiveyearonthebackofitsstrengthsin
finance,transportandtrade.However,itwasmarkeddownoninnovationwhereitranked
27th,withbusinessleaderscitingthecapacitytoinnovateastheirbiggestconcern.
Indiawasastandoutperformer,endingfiveyearsofdeclinetosurge16placeshigherto55th.
Incontrast,theregionsbiggesteconomy,Chinafailedtoadvance,demonstratingthe
challengesitfacesintransitioningitseconomy.
SouthKoreawasunchangedin26th,whileSoutheastAsiasmajoreconomiesshowedmixed
results.WhileVietnamadvanced12placesto56thandthePhilippinesgainedfiveranksto
47th,Thailandslippedaplaceto32ndandIndonesiadroppedthreeto37th.Myanmarwas
theregionsworstperformerin131st,withPakistanranked126thandBangladesh107th.
Thereportranked140countriesbasedon12pillarscomprisinginstitutions,infrastructure,
macroeconomicenvironment,healthandprimaryeducation,highereducationandtraining,
goodsmarketefficiency,labormarketefficiency,financialmarketdevelopment,technological
readiness,marketsize,businesssophistication,andinnovation.
AccordingtoWEF,theneedforfurtherstructuralreformswasshownbythecorrelation
betweenhighlycompetitivecountriesandthosethathaveeitherwithstoodtheglobal
economiccrisisormadeaswiftrecoveryfromit.Thefailure,particularlybyemerging
markets,toimprovecompetitivenesssincetherecessionsuggestsfutureshockstotheglobal
economycouldhavedeepandprotractedconsequences.
TheforumhighlightedsuccessstoriessuchasIndiantrainingcompanyInfrastructure
Leasing&FinancialServices(IL&FSSkills),whichaimstoaddressanationalskillsgapby
trainingyoungpeoplefromruralareasin16strategicsectors.Workingunderapublicprivate
partnershipmodel,theorganizationhasalreadytrained100,000students,with85percent
successfullyemployed,WEFsaid.
Similarly,SouthKoreasMeisterSchoolsaimtoalleviateanunbalancedlabormarketwhere
reportedly42percentofKoreansareoverqualifiedfortheirjobs,but20percentofsmaller
enterprisessufferfromskillsshortages,suchasalackoftechnicalworkers.Thenetworkaims
toraisethestatusoftechnicaljobs,givingstudentsfreetuitionandreferringthemasyoung
meister,theGermantermformastercraftsman.
Commodityrisks
WhileAsiasresiliencetofinancialshockssuchasthe2008globalfinancialcrisismayhave
beenstrengthenedthroughclosertraderelationships,theregionfacesagrowingchallenge
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fromtheeffectsofChinasslowdown,thewideninginterestratedifferentialwiththeUnited
Statesandweakoutlookforcommodityprices.
AccordingtotheInternationalMonetaryFund,recentdeclinesincommoditypricescould
shaveoffonepercentagepointannuallyfromthegrowthrateofcommodityexporterssuchas
IndonesiaandAustraliaover201517comparedwith201214,withthedragashighas2.25
percentagepointsforenergyexporters.
TheAsianDevelopmentBank(ADB)hasalsowarnedthatsoftergrowthprospectsforChina
andIndiaandasluggishrecoveryinadvancedeconomieswillfurtherslowgrowthin
developingAsia.TheADBexpectsgrossdomesticproductgrowthintheregionof5.8percent
thisyearand6percentin2016,bothdownonitsMarchprojectionsof6.3percentforboth
years.
Thenewnormalofslowproductivitygrowthposesagravethreattotheglobaleconomyand
seriouslyimpactstheworldsabilitytotacklekeychallengessuchasunemploymentand
incomeinequality.Thebestwaytoaddressthisisforleaderstoprioritizereformand
investmentinareassuchasinnovationandlabourmarketsthiswillfreeupentrepreneurial
talentandallowhumancapitaltoflourish,ColumbiaUniversityeconomicsprofessorXavier
SalaiMartinwasquotedsayingbytheWEF.
RecessionproofingAsiainthefourthindustrialrevolutioncouldprovefarharderthanthe
regionspreviousgainsfromexportdrivenindustrialization.Learningthelessonscouldbe
crucialifAsiaistomoveaheadintheglobalcompetitivenessrace.
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