Asian economies are likely to experience weak growth over the next five years as the financial crisis has reduced consumer wealth in the region’s key export markets, says Joshua Felman, assistant director of the Asia and Pacific Department at the International Monetary Fund. The financial crisis and the corresponding collapse in equities and house prices effectively sliced one year’s income from the total savings of US consumers.
“[The American] people have lost the equivalent of one year of work income [from the reduction in gross domestic product],” he said. “Let’s say people want to replenish it. And we consider how long and the kind of savings risks they will take. I would say it would probably take 10 years to recover 100%.
“We expect consumption in the US to be subdued for a long time.”
The modest rebound in Asian exports since July has been driven by US companies replenishing their inventories after freezing orders since September 2008. But the trend is only temporary as US consumers are likely to spend less, Mr Felman said at a seminar held by the Sasin Graduate Institute of Business Administration in Bangkok.
He said Asian consumption and business expansion were driven mainly by international trade, making the region highly sensitive to the downturn in global markets. The IMF estimated investment in Asia would fall by half of the degree of the decline in exports.
China’s huge stimulus spending helped trigger an investment boom, but its consumers still could not match those of the US and Europe, he said.