The Economic and Social Impacts of the Global Crisis in ASEAN
Economic Impact and Transmission Mechanisms
While many ASEAN member countries only saw moderate deceleration in economic growth in 2008, as the crisis intensified and demand began to sharply slow in the United States, the European Union and Japan, a substantial decline in economic activity took place in many of these countries from late 2008 and 2009. Current IMF forecasts indicate that economic growth in the Asia region as a whole will drop to 1.4 per cent this year while the ASEAN-5 countries combined may see no growth in 2009.
There are a number of ways in which the current crisis is being transmitted to ASEAN economies. Understanding the specific mechanisms through which industries and economies are being affected is essential for assessing the likely labour market impact and for designing appropriate policies to mitigate the adverse effects.
Exports have played a major role in ASEAN's strong growth performance in past decades, with many ASEAN economies highly reliant on exports to earn foreign currency and fuel domestic development. Heading into the crisis, manufacturing exports comprised more than 140 per cent of GDP in Singapore, nearly 70 per cent in Malaysia, more than 40 per cent in Cambodia and Thailand and more than 30 per cent in the Philippines and Vietnam. On the other hand, manufacturing exports make up only around 11 per cent in Indonesia. As consumers in developed economies abruptly cut back on spending in 2008 and the beginning of 2009, demand for ASEAN's exports have fallen sharply. The January 2009 export data for Malaysia and the Philippines indicated an astounding year-on-year drop of more than 34 per cent and 41 per cent, respectively. Accordingly, many firms in the ASEAN region have sharply cut production, with an unmistakable rise in factory closures.
Foreign direct investment (FDI) has also been an important contributor to growth in many ASEAN economies — allowing them to move up the value chain through increased access to both capital and more advanced technologies. As a share of gross fixed capital formation, FDI comprises some 60 per cent in Singapore, 52 per cent in Cambodia and 25 per cent in Vietnam. FDI also accounts for a large share of capital formation in Malaysia, Pakistan, Thailand and the Philippines.