The Impact of the Global Economic Slowdown on South Asia

The current global economic slowdown is unprecedented in scale and has severe implications on policy formulation among emerging market economies. A prolonged period of sub-par growth driven by the substantial weakening of the financial sectors will have multiple effects on these economies. In this article we shall explore the transmission mechanisms through which the global crisis impacts emerging market economies, particularly South Asia. After studying the shock amplifiers and shock absorbers present in South Asia we offer some crucial policy suggestions. In the short term, with inflation under control, aggressive monetary policy easing would be appropriate. This should be complemented by cautious fiscal stimuli. Material currency devaluation should be considered only in the event of clear misalignment. Policy coordination at the regional level should also be practised. In the longer term, structural enhancements such as increased economic diversification, infrastructure development and augmented regional integration will be the primary tools to help bolster resilience against future external shocks.

Manu Bhaskaran is the CEO and Director of Centennial Asia Advisors Private Limited, Singapore.

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