This year’s economic growth data for the four Asian Tigers — Taiwan, Hong Kong, Singapore and South Korea — appear pessimistic, with export-driven economies facing the effects of weakening growth in China, lingering US-China trade tensions and a downturn in the global technology sector. Some economists have said that the regional outlook might improve in the second half of the year, but low growth has persisted over several quarters, raising the question of whether slower growth is the new normal and when faster growth might re-emerge.
With slowing economies and subdued inflation, central banks are likely to keep interest rates unchanged, but a long period of low rates could negatively affect their economies, giving policymakers little room to wield monetary tools to stimulate growth.
Singapore began the trend on April 12, when it reported 1.3 percent growth year-on-year for the first quarter, down from 1.9 percent in the previous quarter.
On April 24, South Korea reported 1.8 percent growth year-on-year for the first quarter, its slowest expansion since the third quarter of 2009. However, on a quarterly basis, South Korea’s economy contracted 0.3 percent, the worst since the 2008 global financial crisis. Its exports fell in March for the fifth consecutive month, while private consumption registered the slowest increase since 2016. The data are horrible and are raising concerns over whether its economy is on the brink of a recession.
On Tuesday last week, as the markets digested the poor data and pushed the South Korean won to become Asia’s worst-performing currency so far this year, Taiwan reported 1.72 percent growth year-on-year for the first quarter, the slowest since the third quarter of 2016, although GDP rose at a seasonally adjusted, annual rate of 1.98 percent from the previous quarter, eliminating concerns about a technical recession.
Hong Kong on Thursday reported 0.5 percent growth for the first quarter, from 1.2 percent in the previous quarter, its slowest annual growth in nearly 10 years.
The latest manufacturing purchasing managers’ index data, released last week, indicated a mixed picture across Asia, with economies such as Taiwan and South Korea reporting slight improvements in factory activity for last month, while others still appeared to be on shaky ground.
Expecting an imminent recovery among regional manufacturers is unrealistic. If the US and China cannot resolve their differences, and if some or all of the tariffs are kept in place, the pressure on global trade will continue to negatively affect Asian economies.
For years, the Asian Tigers have seen their economies buoyed by robust exports, growing workforces, rising wages and increased household spending. However, aging populations and lagging productivity coupled with weaker external demand and the volatility of the technology cycle are making low economic growth their new normal.
Businesses in Taiwan, Hong Kong, Singapore and South Korea face new challenges from rising competition in China and other emerging economies in Asia, while they can no longer obtain the cheap loans necessary for expansion, as central banks are unable to pare back interest rates further.
However, if businesses adopt increasingly pessimistic outlooks about national growth and start reining in wage hikes, capital investment and research and development, they could create problems for themselves and national expansion as a whole. Governments should implement effective measures to address this new normal before it is too late.
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