Impacts of the global financial crisis

By the third-quarter of 2008, what started as a housing-sector crisis in the United States has turned into a full-blown global financial crisis with far reaching and still unfolding consequences. Equity markets across emerging economies of Asia experienced sharp declines immediately, and property markets promptly followed. Excessive short-term capital inflows , so called "hot money," of the last several years rapidly turned into excessive short-term capital outflows . Since the mid-2008, exchange rates have been depreciating across the board, and foreign exchange reserves, guardedly built and held over the years, were being drawn down rapidly to fight the free fall of currencies. The biggest blow to the region came at the end of 2008, when exports orders started to get cancelled, export financing cut back, and layoffs after layoffs being announced. In the Republic of Korea, exports fell a year-on-year 32.8 per cent in January 2009. In Japan, the drop in December 2008 was 35 per cent and in Taiwan, Province of China, it was a record 41.9 per cent. In China, the engine of much of Asia-Pacific region's growth, exports fell 2.8 per cent just in December 2008, its second consecutive drop and its largest in a decade. Not withstanding the heightened vulnerability by the end of 2008, the developing Asia-Pacific region is estimated to have grown by a robust 6 per cent in 2008—though down from a high of 8.8 per cent in 2007. In 2009, however, the region will feel the full brunt of the global financial crisis, with a projected growth of around 4 per cent—the worst performance since the Asian crisis (UNESCAP, 2009). All sub-regions are expected to slowdown. Small open economies will be affected the most and those that are less reliant on exports may suffer less. Countries that are suffering political instability may see harsher punishment by investors. The slowdown may translate into millions more unemployed and the closure of many factories—posing a grave threat to the gains made in reducing poverty and improving social indicators in the last decade.download