"It's all over!" said the television commentator, mistakenly, for the referee had not, after all, blown the final whistle. "It is now!" was his next comment, for another goal had gone in.
In Britain those two phrases, spoken in the closing seconds of England's triumph in football's World Cup in 1966, resonate -- as well known as "Say it ain't so, Joe" in the United States, spoken by a boy to his baseball hero, "Shoeless" Joe Jackson, accused of throwing the World Series in 1919 in a betting scandal.
And now in Asia, formerly one of the stars of the global economy, the commentators are saying "It is all over" with almost as much excitement.
Listen to this, from J.P. Morgan's regional economists: "A wide variety of indicators have suggested that, at least for the bellwether tech economies (Korea, Singapore, Taiwan and Malaysia), the recovery may already have started. Global semiconductor prices have tripled ... stock markets have surged ... industrial production produced significant upside surprises."
Is Asia back in business? Is the downturn over? Or are there still vices, hidden from view perhaps, that threaten to cause Asia to disappoint again? Is it all over, or ain't it so?
A few years lend perspective on this story of victory, defeat -- and victory again. Emerging Asia -- as most of Asia with the exception of developed and stagnant Japan is called -- has been the emerging world's success story, achieving, unlike Latin America or Africa, sustained rapid growth in the past three decades.
Some of the most successful countries of the region, such as South Korea, Malaysia and Taiwan, have raised the standard of living enjoyed by their populations substantially. China is much poorer but, it, too, since the reforms of Deng Xiao Ping, has begun to achieve -- at least according to the official numbers -- much more rapid growth.
Globally, the impact of Asia's rapid growth has been important. That was never more clear than when the Asian success story suddenly went wrong in 1997-98. A big slice of the global economy was lost: in one year an amount of demand equivalent to around Canada's GDP. As a result, the price of oil and other commodities tumbled. And that price collapse, in turn, impoverished other emerging economies. Russia depends heavily on oil and gas exports; it went into crisis in 1998. Brazil followed it. Argentina's still burning crisis began at that time.
But Asia did not go all to pieces. Its sudden and deep setback in 1997-98 was followed by surprisingly swift comeback in 1999-2000: a recovery led by exports as the U.S. economy and world trade boomed. Though crisis had been recent, Asia was supremely well-placed to benefit. Asian currencies had fallen; its exports were super-competitive. And some of the countries are leaders in the technology that was at the heart of the boom.
And it was that -- dependence on exports and on technology -- that again left the region vulnerable in 2000 when U.S. tech stocks heralded the end of the U.S. growth "miracle." The region has suffered, though not nearly as severely as in 1997-98.
In 2001 J.P. Morgan estimates that the economies of Taiwan and Singapore contracted by 2.2 percent, while Malaysia and Hong Kong recorded meager growth, of just 0.1 percent and 0.2 percent respectively. Asia as a whole, excluding Japan and China, is estimated by J.P. Morgan to have grown by only 1.8 percent in 2001.
But things might have been worse. Asia, in 2001, had no Argentinas. Why? Part of the reason is that the balance of payments crises had already happened. Now floating exchange rates have helped to reduce the region's vulnerability to a global downturn. And, unlike Latin America, Asia has proven its ability to produce and export. Asia's collective current account position is in generous surplus.
Meanwhile, with global demand for imports slackening, increased government spending in Korea, China, Malaysia and other countries has helped to offset the private sector slowdown. And both Korea and Japan are spending now, too, as they prepare to stage this year's football World Cup. Asia has got by quite well so far in the current global slowdown. But there has been a cost: rising fiscal deficits.
Now, however, J.P. Morgan is raising its growth forecasts. It sees Asia (excluding Japan and China) growing by 3.4 percent in 2002, twice as fast as last year, and by 5.0 percent in 2003. If resilient China is included the acceleration is less swift because Chinese growth is estimated at a strong 7.3 percent in 2001, but the regional overall growth rates are higher still: from 3.5 percent for the region in 2001, to 4.5 percent in 2002 and 5.8 percent in 2003. But are these forecasts realistic?
There are obstacles to Asia's recovery, internal and external ones. In the first place, much of the recovery that forecasters see hinges on recovery in the U.S. economy and in the technology sector. In the United States, as in Asia, many of the recent signals are being interpreted as positive. But, just as in Asia, an easing in the decline in industrial production in the United States may reflect little more than an end to the worst of the slashing of business inventories.
And for this correspondent, at least, many of the other putative signs of strength in the U.S. economy, such as the buoyant housing market and resilient consumer spending, reflect not recovery but the fact that the asset price boom of the late 1990s is not yet over. The persistence of what economists call imbalances -- a very low savings rate; a very large trade deficit -- may show that the United States is not yet ready to take off on a renewed flight of high growth. Recovery in the U.S. economy in 2002 may be weak and be followed by renewed downturn in 2003.
Potential disappointment in the United States is one threat to Asia. Perennially disappointing Japan is another. The Japanese economy is in recession and showing little sign of lifting out of it. The yen has recently dropped still lower against the dollar.
Yen weakness makes it harder for the rest of Asia to compete in Japan and means that exports from emerging Asia may lose out to Japan in Europe and the United States. "Places like Shanghai, which are gearing up, with Taiwanese help, to do battle with Japan in the global semiconductor market, will find themselves undermined by Japanese semiconductors," says Davies.
A weak yen also raises question marks about capital movements. Japan has invested in southeast Asia, placing capacity overseas. It may not continue to do so and may even repatriate production, if it thinks it can produce cheaply in Japan.
"If the United States is the locomotive of the world economy, Japan is the brake van," says Ken Davies, Chief Asian economist at the Economist Intelligence Unit in London. The Japanese brake is applied. The lever has rusted. That is bad for Asia but what should also concern us is that other Asian economies have some of Japan's failings.
For these worries about which emerging Asia has little control are joined by the worries that it might tackle, but hasn't. "There is the perception that Asia is OK as long as it does some liberalizing. It is not. There are too many debt icebergs and industrial overcapacities," says Davies.
Both the overcapacity and the debt reflect Emerging Asia's way of achieving development which, until 1997, appeared vindicated by results. Banker and manufacturer grew within the same sprawling conglomerate under the approving eye of the government. Output spiraled but much inefficient capacity and many bad loans -- as well, more positively, as some excellent, high-tech production -- are the result.
There must be doubt about how the bad loan problem is being handled. In Korea, for example, the industrial conglomerates known as the Chaebol remain largely unrestructured and, just as in Japan, the government applies pressure on banks to lend still more money to them.
How much does government direct what should be independent economic decisions in Korea? Wilfred Horie, an American who became the first foreign head of a Korean bank, Korea First Bank, told the Taipei Times last November that he thought "there was quite a lot of pressure" on state banks to lend to the Chaebol. Horie himself resisted government pressure to lend to the troubled Hynix Semiconductor company. In what may be an unpromising sign, he has now left.
Is Asia ready, then, to recover? The Economist Intelligence Unit sees the region growing at an annual average of 5.9 percent in the next five years, better than any other region in the world, though "still underperforming relative to the pace of growth experienced in the years before the 1997 financial crisis."
But this quite optimistic forecast hangs on a strong rebound in the United States. If the U.S. economy fails to rebound, Asia's growth will remain slack, the bad debt problems of the region may fester and fiscal positions deteriorate further.
Asia, for all its technological strength and its tradition of dynamism does not yet appear ready to recapture the success it once enjoyed. The Asian model was found wanting four years ago. Devalued, floating currencies have alleviated some of the problems. But progress in addressing many problems has been slow.
Don't say it ain't so: there is reason to condemn the cosy but inefficient and sometimes corrupt relationships between banks, manufacturers and government.
The worst of the region's U.S.-inspired slowdown may or may not be ending but it's not yet time to cry victory. The process of tackling Asia's frailties is not over, not yet.
(Global View is a weekly column in which our economics correspondent reflects on issues of importance for the global economy. Comments to [email protected])
