Ethos Issue 6, Jul 2009
It’s Not Over Yet
Manu Bhaskaran
LOOKING FORWARD: CAN THERE REALLY BE AN EASY EXIT FROM THIS CRISIS?
Several aspects of the current slowdown
make a comfortable exit from the crisis
more difficult.
First, unlike the downturns in 2001–2002 or 1990–1991, this is not a normal
recession in the large economies. This
recession is the product of a massive
blow-out in the financial sector and is
global in scale; hardly any reasonably
sized economy is immune to its impact.
Detailed studies of previous economic
slowdowns show that those caused
by such financial shocks take a much
longer time to turn around.
Second, simply because of the sheer
magnitude of the financial crisis we
have faced, the policy responses have
also been commensurately massive. The
risks were so great that policymakers
were prepared to take measures that go
well beyond what they would normally
consider to be prudent. As the economy
stabilises though, the costs of these
gigantic policy responses will become
more evident. The deterioration in
fiscal positions in major economies will
be difficult to reverse. The monetary
expansion has been of unprecedented
scale as well—removing this monetary
accommodation at the right time and
pace will involve much skill. The risk of
failure here is a surge in global inflation.
If the US policymakers do not move
as quickly as their counterparts, the
implications for the US dollar would be
very bad.
This means that, even as the global
economy recovers, new risks will
emerge. For policymakers in Asia, the
implications are clear—expect and be
prepared for more shocks.
Manu Bhaskaran is Partner and Head of
Economic Research at the Centennial Group
Inc, a Washington D.C.-based strategic
advisory group. His major area of research
interest is the Singapore economy and the
policy options it faces. He is concurrently
Adjunct Senior Research Fellow at the
Institute of Policy Studies, Vice President of
the Economic Society of Singapore and a
Council Member of the Singapore Institute
of International Affairs. Prior to his current
positions, Mr Bhaskaran worked for 13 years
at the investment banking arm of Societe
Generale as its Chief Economist for Asia. He
began his professional career at Singapore’s
Ministry of Defence, focusing on regional
security and strategic issues.
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