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OVERVIEW
1
asia in convalescence
7
Little more than two years after Asia slid into its worst recession of modern times, the
economies at the epicentre of the turmoil seem to be recovering strongly. Led by South
Korea and Thailand, all had returned to a growth path by the end of 1999. The economic
turnaround from the dark days of late 1997 and early 1998 came faster than almost
anyone had imagined possible, though there is a lot of ground to make up to recoup
the losses incurred in the downturn. There is still uncertainty clouding the progress
of Japan and China, each grappling as they are with problems only peripherally caused
by the Asian recession. But, overall, there is widespread optimism that Asia is well on
the way to a full recovery. Some of this optimism may be a little premature, however.
The speed of the apparent recovery has dulled the sense of urgency to the need to
undertake further fundamental economic reforms. Reluctance to make painful changes
has seen the restructuring of financial systems and the rationalization of industry
move ahead more slowly than is suggested by the rapid recovery in output, much of which
is supported by heavy government deficit spending. Fundamental reform is still needed.
The worst may be over, but the economies of Asia still face a long period of convalescence
(as we explain in Chapter 2, A Year in Review).
For Canada, the recovery in our economic relationship with Asia has hardly begun. For
Canadian business, “Asia” largely means Japan and China. As long as the Japanese economy
is struggling and Chinese prospects remain uncertain, our exports to Asia will continue
to flounder. Imports, on the other hand, are booming, providing a boost to sectors of the
economy like transport and retailing, to offset the loss of export business in others. There
has also been a benefit to Canada through lower inflation and hence interest rates in the
US flowing from the Asian crisis. The negative impact of the Asian downturn on Canada
was limited to a few industries in specific regions, notably western Canada’s resource
industries. In the same way, the effect of Asia’s recovery on Canada will also be limited
and geographically confined. However, it would be wrong to take comfort from this
limited impact, because, rather than reflecting an area of strength in Canada’s economy,
it defines our small and shrinking economic involvement with Asia.
For a decade or more, as globalization eroded international barriers to the flow of goods,
services and capital, Canadian business has been transfixed by the allure of the American
market. By most measures, our stake in globalization has been extensive, though largely