Some suggested this could lead to the collapse of the only support left for domestic currencies, namely the huge trade surpluses that were being generated as a result of that collapse in demand which had in turn led to sharply lower imports. Others attributed this to year-on-year basing effects, dismissing any prospect of recovery in the near term and pointing instead to the protracted downturn in Latin America, Mexico and Japan after their respective financial crises in 1982, 1995 and 1991. Yet, to us, this slowdown in the pace of import contraction represented something quite different, the first, faint flickering of recovery. In medical terms, it would have been the first up-beat on a heart monitor which had been flat-lining, faint, but still there. Proof at least that the patient was not going to die.
Demand remained deeply depressed by standard consumption indicators, unemployment continued to rise and economies for the most part continued to contract on a quarterly basis. These were, however, lagging indicators, for the most part reflective of the past, substantial inventory reduction and corporate downsizing. Some were sceptical of the reasons behind a gathering slowdown in the pace of import contraction in the likes of Thailand and Korea in particular, attributing the move the to J-curve effects whereby the devaluation of local currencies exaggerated the dollar value of imported goods. Yet, this slowdown in import contraction appeared to be also happening in volume as well as value terms, seriously questioning such a view. For the full year of 1998, imports contracted by a stunning 35.5 year-on-year in Korea and by almost 340o in Thailand after a 13.4% contraction in 1997, yet the first sign of improvement in this key indicator was seen in the fourth quarter of that year. If the collapse in imports was slowing down, that meant that at the very least the fall in demand was slowing, positive news in a regional environment where all prevailing news was dire to moderately bad. That first sign of stabilisation in the IMF programme-countries such as Thailand and Korea were matched by the more efficient economies such as Singapore, which saw a GDP contraction in the fourth quarter of 1998 of -1.1% as against a contraction of -1.9 in the third quarter. While the feeling on the streets was one of utter misery as the full unemployment effects of the financial and economic crisis continued to be felt, particularly by those who had started off lower down on the ladder in any case, a gradual reduction in financial market pessimism took place in the final months of 1998 and the first quarter of 1999 as regards Asian economic prospects. Singapore actually saw positive growth in the first quarter of 1999 of +O.6 and other ASEAN countries saw their contractions continue to shrink. Suddenly, there was talk that since Thailand had been first into the Asian crisis, it would be the first out. Thai manufacturing production had clearly bottomed in May of 1998 (at a contraction rate of around - 1 5 year-on-year), however this was rightly attributed initially to Thai companies re-directing production towards export markets which were still buoyant, as well as basing effects from the financial and economic collapse in 1997. By February of 1999, however, the Thai manufacturing production was actually in positive territory on a year- on-year basis, a degree of revival which could not simply be explained by exports, particularly as exports were still falling (they fell 4 year-on-year in the first quarter of 1999). Simultaneous to that, albeit after a lag, imports started to come back in earnest. After falling 11.6 in the fourth quarter of 1998, import growth in volume terms (and thus not distorted by foreign exchange considerations) actually rose over 5 in the first two months of 1999. Simultaneous to this process, the collapse in credit growth bottomed out and money supply growth data also regained positive territory in early 1999, the result of the massive fiscal and monetary stimulus which the Thai and other ASEAN governments undertook from the second half of 1998 onwards.
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