Quarterly growth reports released in recent weeks for the major economies in Southeast Asia have been pretty grim. This week, Thailand surprised investors and analysts by reporting that its economy had contracted in the second quarter of 2013, falling into a technical recession. In Indonesia, second quarter growth came in below forecasts, while in Taiwan, although the second quarter produced strong growth, the government reduced its forecast for 2013 overall. Meanwhile, Malaysia’s economy grew at a slower-than-expected rate in the second quarter, and the government slashed its forecast for 2013 as a whole.
In many of these countries, massive current account deficits and the end of cheap credit are to blame for the slowdowns. Some financial analysts worry that the region—including not only Southeast Asia but also China—is repeating some of the mistakes that led to the disastrous 1990s Asian financial crisis. Cheap credit in nearly every major Southeast Asian economy (and in China) has led to booms, often wasteful, in housing construction; many countries in the region now have unprecedentedly high current account deficits and debt/GDP ratios. A recent article in the Financial Times suggested that, if all the books were opened, China would have total debts worth more than 200 percent of gross domestic product. Some leaders in Thailand, Malaysia, Indonesia and, one suspects, in China, worry that as easy credit is less available many of these countries are going to face currency crunches similar to that which launched the Asian financial crisis in 1997 as the Thai baht’s peg to the U.S. dollar collapsed.
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