Allianz held a press conference in Jakarta today on the economic outlook for Asia at which the Chief Economist of Allianz Group, Michael Heise, presented a new study on the challenges and opportunities for Asia in the wake of the crisis.
The financial crisis of 2008 is a secular event that will change the course of development for many years. Allianz Economic Research expects that the green shoots of recovery are heralding a good second half. The first indicator to improve after the fierce drop in demand was business expectations. Whether you look at the purchasing managers’ indices – with the very marked rebound for example in China – or other sentiment indicators we see that some confidence is returning in the corporate sector. The turnaround can also be seen in analysts’ economic expectations, in rising stock markets and in declining corporate bond spreads. It is also evident in the stabilizing housing market in the US and rising base metal prices. And especially important, key financial crisis indicators such as bank credit spreads or money market rates have improved.
Asia was hit particularly hard by the financial and economic crisis as booming exports had been the major driver of economic growth in recent years. Between 2004 and 2008 real gross domestic product in the region rose by an average 8% a year, making Asia the most dynamic region in the world by a long way. The heavy reliance on exports resulted in an economic slump in the financial and economic crisis, on a scale last seen in the Asian crisis of 1997/1998. For 2009 we are forecasting fairly low growth of 2.7% for the region. “However, in all probability Asia will be spared a prolonged period in the doldrums,” said Michael Heise. Apart from the improvement in the global economic outlook the main reasons for this can be traced to the region’s relatively robust banking system, large currency reserves and current account surpluses, and low foreign debt.
What is striking about the current situation in Asia is the very marked gap in performance between the individual countries. While many factors are involved, such as prosperity levels and political stability, broadly speaking countries with a large and robust domestic market will see a marked slowdown in growth this year but they will be spared the economic contraction which will afflict the smaller export-dependent countries. As world trade stabilizes in the second half of 2009 we expect the economy to pick up across the region. For 2010 we are forecasting growth of 5.6%, double this year’s rate.
Given the dramatic slide in US imports and the importance of the USA as a sales market, the Asian growth model is set to change. Export momentum will be lower than before the crisis and trade surpluses will decline. In order to achieve strong growth in the future, the Asian emerging markets are rightly attempting to bolster domestic demand in the medium term. In the foreseeable future it is unlikely that the US will re-emerge as the source of such powerful demand and import growth.
This year, Indonesia will probably be the only one of the three big ASEAN states to notch up positive economic growth. Domestic demand has proved fairly robust so far and, given the size of the home market, this is keeping the negative repercussions of slack foreign demand on economic growth in check. We are looking for real GDP growth this year of around 3.5% (2008: 6.1%).
Jens Reisch, CEO of Allianz Life Indonesia, commented on the results of the study. "Overall, the outlook of Allianz Economic Research for Indonesia is (rather) positive. We fully share this view. Compared to the last economic crisis in 1997/1998, Indonesia's fundamental economic situation is in a stronger position nowadays. The combination of the monetary and fiscal measures taken by the Indonesian government is a good foundation for the positive economic development forecasted in the study," Jens Reisch said.
Moreover, in response to the findings from the Allianz Economic Research, Volker Miss - CEO of Allianz Utama stated “We are now experiencing a more and more demanding environment in Indonesia’s insurance industry. However, we, as an industry, should be confident to grow profitably as long as we keep maintaining our underwriting discipline and manage our investment portfolios prudently for the rest of this year.”
