'Stronger domestic demand required for rapid regional growth'

Asia's attempts to rebalance growth towards domestic sources would in part depend on the development and growth of the region's business sector, says a report from the Asian Development Bank (ADB). The report, published in a special chapter of Key Indicators 2009, the flagship annual statistical publication of the ADB, says a return to rapid regional growth would require stronger domestic demand, for which the emergence of a large and rapidly growing urban middle class is a key.
The health of Asian enterprises, especially small and medium-sized enterprises (SMEs), where most Asian workers are employed, would be important in this regard. According to the report, many of the region's most dynamic and export-oriented enterprises have been forced, as a result of the crisis, to scale back operations, cut production, and lay off workers.
In seven out of eight East and Southeast Asian countries tracked in the report, manufacturing employment has declined by about 2 percent to 7 percent between the first quarters of 2008 and 2009. Smaller enterprises, which tend to be more domestically oriented, have been less affected, but the credit crunch and a slump in demand are now beginning to hurt.
Many governments have taken steps to support economies through fiscal stimulus and the easing of monetary policies. Some have directly assisted enterprises through credit guarantees, subsidised loans and fiscal incentives, among other programmes. The report says public policy has a key role to play in helping SMEs grow and become more productive.
It says governments should work with commercial forces to correct existing market failures, particularly in the provision of finance. Policy needs to help smaller firms raise their levels of productivity and employment through innovation, which includes adopting new technology and diversifying into new markets. Governments could assist firms by providing information services on technology and markets, vocational training, and technical support services, and by fostering linkages between SMEs and large enterprises.