Introduction

The global financial crisis that began with the loss of confidence in the sub-prime mortgages in the second half of 2007 has spiralled into a full blown economic crisis with severe impact on the real economies all around the world. Debates over the causes and consequences of this global crisis, which is no longer confined to the financial sector, continued even as “green shoots” of recovery are said to be appearing. What this paper will attempt to do is to focus on how this global economic crisis has changed the geo-economic and geopolitical landscape in Southeast Asia, and how these in turn will impact ASEAN's own internal economic cooperation. Also to be discussed in the paper will be the impact the global economic crisis has on the ASEAN+3 process, and ASEAN's relations with the European Union (EU). The paper will also draw from the lessons of the Asian financial crisis and ASEAN's responses to this earlier crisis, and speculate on some of the likely outcomes of the current crisi on ASEAN's development of its regional processes and dialogue partnership.

Economic Impact of Global Crisis on Asia and ASEAN

The global impact of the crisis has seen world trade contracted for the first time since World War II. WTO is forecasting that global trade will decline 9 per cent or more in 2009. Till end of 2008 and early 2009, the picture was bleak. Growth has slowed considerably in all emerging economies and gone negative for several of the developed economies. Japan's GDP contracted by 3.3 per cent, the Euro Zone by 1.5 per cent and the United States by 1 per cent in the last quarter of 2008. China which has enjoyed double digit growth for many years, would see growth down to 5–6 per cent in 2009. More broadly, what the crisis has done is to undermine the drivers of globalization — open markets, foreign direct investments and private ownership — and there is a risk of protectionist backlash and economic fragmentation.

In the early stages of the financial crisis in 2007, Asia was spared significant fallout leading to several economists hailing the “decoupling” of the Asian economies from the U.S. locomotive. This was proven wrong as the crisis deepened and developed into a global financial and economic crisis.