Asia: Economic growth slows post 97 financial crisis, stockmarkets surge

New research from Halifax shows that Asian economies have recovered from the 1997 financial crisis. South East Asian economies, on average, have a level of GDP that exceeds pre-crisis by more than 50% but have not fully recaptured the economic growth rates seen prior to the 1997 crisis. By contrast, stockmarkets have seen better returns over the past five years than in the five years before the crisis. South East Asian stockmarkets have, on average, seen a 124% rise in stock prices in the past five years compared with a 54% increase in the pre-crisis period.

Asian economic growth rates are more than one percentage point lower than before the crisis

Economic growth rates in South East Asia have been, on average, 2 percentage points (ppt) lower per annum during the past five years than in the five years before the Asian crisis (5.6% against 7.6% pa). However, growth rates in the region have an improving trend.

Lower investment rates key factor behind economic growth slowdown

Investment grew at an annual average rate of 11.0% in South East Asia over the five years leading up to the Asian crisis. During the crisis period (1997-99), investment in South East Asia fell by an average of 8.6% pa. In the past five years, investment has grown at an average rate of only 4.3% in South East Asia, well below pre-crisis rates.

Stockmarket returns soar post-crisis

South East Asian stockmarket levels have more than recouped the losses during the crisis when they fell, on average, by 47%. South East Asian markets are now, on average, 73% above the pre-crisis levels of June 1997. In contrast to moderating economic growth rates, regional stockmarket returns over the past five years have exceeded the gains made in the pre-crisis period. South East Asian stockmarkets have, on average, seen a 124% rise in stock prices in the past five years compared with a 54% increase in the pre-crisis period. A better financial framework with more rigorous company reporting standards, along with still comparatively high economic growth rates has attracted investors back to the region and seen returns surge.

Exchange rates in Asia remain well below pre-crisis levels

South East Asian currencies depreciated sharply during the Asian crisis as many foreign investors liquidated their holdings in the region. South East Asian currencies fell, on average, by 33% against the US dollar between June 1997-99. In the past five years, these currencies have appreciated – up 20% on average against the US dollar - but are still, on average, 30% below pre-crisis levels despite the recent appreciation. The biggest depreciations from pre-crisis levels have been in the Indonesian Rupia (-73%), the Philippine Peso (-44%) and the Malaysian Ringitt (-26%).

Inflation rates fall across Asia post-crisis

While economic growth is slower than before the Asian crisis, inflation is also lower across the region. South East Asian economies have seen, on average, annual consumer price inflation of 3.4% in the past five years, 1.2 percentage points lower than the 4.6% averaged in the five years before the crisis.

Short term interest rates are significantly lower since the crisis

Lower inflation across the region since the Asian crisis has also led to lower short term interest rates. Over the past three years, short term interest rates in South East Asia have averaged 4.4%, considerably below the 9.4% average short term interest rate in the three years before the crisis. During the crisis, short term rates in South East Asia averaged 15.9% as central banks in the region sought to stabilise currencies and bring inflation under control.

Martin Ellis, Halifax chief economist, commented: "Asian stockmarkets have seen stronger gains in the past five years than in the five years before the Asian crisis despite lower economic growth rates than prior to the crisis. Importantly, economic growth in the region is on an upward trend, which is helping to attract back investors and drive up stock prices."