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Asia Pacific | 5 big economies’ stimulus exit plans

Asia Pacific | 5 big economies’ stimulus exit plans
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First Published: Tue, Nov 03 2009. 11 34 AM IST
Updated: Tue, Nov 03 2009. 11 34 AM IST
Fast-paced growth has seen Asian economies outpace their global counterparts in recent months, raising the question of when more than a trillion dollars of emergency stimulus money deployed to fight the financial crisis may be lifted.
Here is a snapshot of the size, effects, and status of stimulus plans in the Asia Pacific’s five largest economies.
Japan
Stimulus: $170 billion (15.4 trillion yen), about 3% of GDP, to be paid for by issuing 44 trillion yen in new bonds.
State of the economy: Japan made a fragile recovery from its worst recession in World War II in the second quarter and is expected to sustain growth in the third quarter. Some analysts fear a government plan to slash public works spending may nudge growth near zero early next year.
Exit Plan: None. Current measures run to March 2010. The Democratic Party, which took power on 30 August, is considering compiling another extra budget and eyeing more huge spending in next fiscal year’s budget.
The Bank of Japan said on 30 October it would stop buying corporate bonds and commercial paper at the end of the year, although it extended by three months to March low-interest loans aimed at supporting corporate funding. It has pledged to maintain interest rates near zero for as long as necessary.
China
Stimulus: Beijing unveiled Asia’s largest stimulus, some 4 trillion yuan ($585 billion), in November 2008, to boost domestic demand through 2010, and complemented it with a record lending spree by the country’s mainly state-owned banks.
State of the economy: Growth gradually accelerated to hit 8.9% year-on-year in the third quarter, all but ensuring the government will hit its target of eight percent overall for 2009.
Exit Plan: The massive $585 billion stimulus will be disbursed this year and next. Three-year programmes aimed at sectors such as textiles and affordable housing is due to wrap up by 2011.
The yuan, which Beijing has effectively repegged to the dollar since July 2008 to aid exporters, remains an issue. Central bank governor Zhou Xiaochuan said on 30 October that currency reforms would continue, but economists doubt the yuan will climb again until well into next year.
India
Stimulus: $4 billion worth in two packages, 0.4% of GDP, rolled out since October 2008 to revive domestic demand, rural-urban infrastructure and the export sector.
State of the economy: Growth in Asia’s third-largest economy slowed to 6.7% in 2008-09 from rates of 9% or more in the previous three years. It is expected to slow to 6.3% in 2009-10, but may rebound to 7% in the fiscal year from April 2010, the finance minister said last month.
Exit Plan: India needs more time to decide on an exit strategy, the finance minister said in October. However there are signs that the central bank is looking to start winding back some extraordinary monetary easings, with growth now showing signs of picking up and inflation starting to rise.
On 28 October the Reserve Bank of India raised the statutory liquidity ratio by 100 basis points, unwinding a cut made last November during the credit crisis.
Australia
Stimulus: A$52 billion ($37 billion)-plus in two packages since September 2008, the latest of which at A$42 billion is worth about 2% of GDP this year and 1.3% next year.
State of the economy: Australia’s economy grew by 0.6% in the second quarter, after suffering only one quarter of contraction during the latest downturn.
On 6 October, its central bank became the first in the G-20 to raise interest rates since the crisis, saying the worst for the economy had passed. It raised rates again on 3 November.
Exit Plan: The timeframe is 2009-10 for the latest A$42 billion package. In September Treasurer Wayne Swan said economic stimulus would be gradually withdrawn from the last three months of this year on, through to 2011.
South Korea
Stimulus: 69 trillion won ($51.2 billion), about 7.5% of GDP. The government says the package’s tax breaks and environment-friendly investments could create more than 1.5 million jobs over several years.
State of the economy: The economy grew at its fastest rate in more than seven years in the third quarter although this was mainly driven by inventory adjustment.
Exit Plan: None in sight. Stimulus timeframe is up to and including 2012. On 24 September, finance minister Yoon Jeung-hyun said it was too early to discuss the timing of an exit strategy.
Pressed on likely exit logistics, he said credit guarantees and rolling over loans for small and medium enterprises may be the first to be withdrawn to restore “market discipline.”
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First Published: Tue, Nov 03 2009. 11 34 AM IST