International Trade and Competition - Analyzing Slow Economic Recovery of Asian Pacific Region - Literature review Example

The effects of the 2008-09 economic crises marked the end of the first decade of the 21st century in a rather bleak global economic outlook. Headlined by the collapse of an American investment bank, Lehman Brothers, in September 2008, the ripple effect generated within the American economy soon stressed other world economies, including that of Singapore, marking the country’s worst ever economic recession. After the crisis, most Asian countries recorded rapid recoveries by 2010. However, this recovery would soon experience deceleration in 2012 following the entry into a second phase of the crisis by most economies that resulted from a halt in spending by developed economies aimed at addressing their increasing public debt alongside poor domestic growth records. Growth in most Asian Pacific countries would hit a snag as the countries had to contend with constrained demands of their exports in developed countries. Additionally, the re-emergence of high costs of food and energy would also contribute to the slow growth registered during the post-crisis era. Thusly, central to this discussion are the factors that contributed to the slow path to recovery as well as possible measures and policies that would have effectively addressed the issues.

A study by the International Monetary Fund (2011) revealed that prior to the crisis, most Asian Pacific countries had registered an annual growth rate of 2 percent for the past ten years, a figure that was significantly lower than the 6 percent recorded by other Asian low income countries. As a result, the impacts of the crisis had far-reaching consequences within the region, and generally recorded slower recovery, although at different paces. Essentially, the slow recovery recorded in such countries had something to do with their relatively small export base, an aspect that could not allow global recovery to feed into a large increase in external demand. While most countries in the Asian Pacific belt had experienced a number of sporadic recessions over the past forty years prior to the 2008-09 global one, most of these did not coincide with other previous world recession. Their resilience to economic disturbances coupled with their relatively small export base upon which most sectors of the economy rely is an indicator of their vulnerability.

In 2010, most Asian Pacific countries recorded high growth prospects that indicated their recovery, but this would change barely a year later. Apart from the base effect of the crisis, the slowdown in economic growth registered by countries such as Singapore were in part the result of the withdrawal of fiscal stimulus policies, tighter monetary policies adopted by numerous nations around the globe to cub their respective rising inflation rates as well as the sluggish recovery experienced in developed economies. A joint study by Petri, the Institute of Southern Asian Studies and Pacific Economic Cooperation Council (2010) showed that the excessive portion of the US current account deficit, usually 3 percent, only amounts to 1 percent of the GDP of Asian Pacific Countries. Yet, despite the presumed insignificance, they exert immense stress on global financial relations and any imbalances often reflect massive distortions within individual national economies. This explains why the slower economic growth in exports that began around 2010 would soon spiral out of control, resulting in extended immersion into further recession.

Reliance on exports as the major contributor to the GDP of Asian Pacific countries also presented its fair share of challenges. Generally, in countries where exports are the key drivers of growth, sluggish recovery of developed economies had a ripple effect on their growth prospects since it significantly reduced the capacity of the developed nations to increase their intake of commodities from such countries. Haddad, Shepherd and the World Bank (2011) describe the phenomenon as an external demand shock, one characterized by a lower demand of a given country’s exports followed by a fall in the price of exported goods and services. Singapore, being an export dependent economy, is highly susceptible to the swings in global export prices, and hence found itself roped in in a chain of reactions that began somewhere else. Furthermore, the fact that most Asian Pacific countries perceived Singapore as a big trade center in the region implied that such shocks would impact on their trade prospects as well, the effect of which was an extended, slow and painful path to recovery that has dragged on to present times.

Singapore, prior to the crisis, had recorded growth in as far as its reliance on domestic demand is concerned. Most Asian and global developing economies with significant domestic demand levels experienced marginal declines in growth as opposed to full face recession. However, the onset of 2011 saw the emergence of tighter monetary policies by developed economies that in turn forced developing countries to aggravated economic crises. Basu (2010) explores the extent to which Singapore’s open economy contributed to its susceptibility to external shocks, noting that the cumulative effects of such shocks results in permanent losses in output that in turn leads the country off its growth trajectory. With diminished output, earning and employment rates recover at different rates depending on how quick labor demands rebound from the shocks, but which due to the diminished demand for the country’s export on the global stage, has been nothing but slow.

In order to mitigate the effects associated with recovery obstacles experienced in Asian Pacific countries, such nations need a working system capable of initiating measures to curb the effects associated with the withdrawal of financial stimulus packages. Jilberto and Mommen (2012) notes that the country’s functional systems characterized by banking supervision, transparency and accountability, etc. provide an ample atmosphere that investors are looking for. Such systems have even grown more salient in the aftermath of the crisis such that despite the upheavals faced regarding export recovery, other aspects of the country’s economy have been performing well. For instance, the country has been successful in keeping its oil prices down to tame inflation, so that while consumers continue to enjoy the relief associated with lower energy prices, industries that are extensively dependent on the same are beginning to establish a bottom for their ultimate recovery.

Diversification of income sources is another remedy that can pace up the journey of recovery. For instance, the country’s service sector currently bears its economic outperformance. A 2014 survey of the country’s economic performance revealed that service-producing industries performed better after recording a growth of 3.1 percent, with the leading sectors being banking and tourism (Economic Survey of Singapore, 2014a). The sources of growth, according to the study, are increase in both domestic and external demand, with external demand accounting for nearly 90 percent of the growth. Furthermore, according to Singapore Tourism Board (2016), visitors’ arrival in 2015 grew by .9 percent, accounting for an equivalent of 22 billion US dollar returns, despite the fact that this represented a decline of 6.8 percent from the previous year. At a time when various headwinds such as the persistence of uncertain global economic outlook and weak currencies, the prospects of directing additional resources to alternative income sources to reduce the country’s reliance on physical exports could not be any better.

Diverging the country’s orientation from export demands to domestic demands in order to boost its employment and labor returns would be a move towards the right direction. Preliminary statistics show that the country recorded an employment growth of 129000 in 2014, a greater fraction of which came from local employment (Economic Survey of Singapore, 2014b). The sectors that registered the most employment gains include wholesale and trade, professional business services, education and healthcare. One common aspect shared by these sectors relates to the fact that they all serve domestic demand, which is an indication of the need to increase the country’s investment on the same for enhanced domestic rewards. The report also indicates that that the robust employment creation realized particularly on the service sector resulted in an overall decline of .1 percent in the rate of unemployment. What this indicates is that in order to realize significant out for sustained economic growth, the country ought to embark on investment discourses that enhance domestic engagement and hence domestic demand.

The path to economic recovery of most Asian Pacific countries has been painfully slow, less robust and characterized by both internal and external upheavals. For instance, over-reliance on exports as the major contributor to GDP, limited reliance on domestic demand, lack of comprehensive policies to counter the effects of fiscal withdrawals, among others have all conspired against the recovery of Singapore and other Asian Pacific countries. Additionally, the weak structural policies inherent in most of these nations have made them highly susceptible to external shocks, whose consequences further jeopardize the course of potential gains. Consequently, in order to mitigate the effects of such challenges, Asian Pacific countries need to diversify their income sources to include the service sector, encourage domestic demand and invest more on labor-inspiring initiatives.