The year 2009 has come to an end, leaving behind all the concern, confusion and fears that dominated the global financial markets and also leaving a special imprint and impact on Asian economies. At a time when global economies were suffering from the repercussions of the global financial crisis, a glimmer of hope appeared from the Asian region that managed by the end to be the main supporter of the world economy and started driving it forward. The global economy has not completely recovered from the consequences of the financial crisis, since major economies still face many financial difficulties and challenges which were not over passed so far. Nevertheless, the positive role which was brought by Asian Pacific economies consisted of higher demand from the region that supported trade worldwide.                     

The year 2008 has left the entire world in agony and increased the challenges governments around the globe had to face during 2009. The recession dominated many major economies, trade was damaged significantly, credit operations weakened, and many banks and financial institutions went bankrupt. Let's not forget the harsh regulations that banks imposed on lending, limiting credit that managed to lower investments around the world.                     

Here came the Asian economies role of supporting worldwide demand, since they were protected from much of the disease that spread fast to the entire world, because of the financial restrictions imposed by the Asian governments, which was one of the important factors behind its survival against the global financial crisis.                     

China is the one that led the recovery in global demand, after the immense stimulus plans that were adopted by the end of 2008, alongside the Australian, South Korean, and Taiwanese economies that responded fast, since demand on their exports that consist as that main pillar in their economies increased from China.                     

Now dear reader, let's review together the most significant events encountered by the large Asian economies throughout their 2009 journey, hoping it will help us build a comprehensive picture about the future of the global economy; especially since Asian economies now play an important part in the global economy.

Japan                      

Japan started 2009 with recession, shrinking during the third and the fourth quarters of 2008. This prompted the Bank of Japan to continue lowering interest rates as the Fed's did, until it reached 0.10%, from 0.30% seen in December 2008, and that's when rates were kept steady by the central bank led by Mr. Shirakawa throughout 2009.                     

The decision to reduce interest rates was accompanied by new steps that were taken by the central bank in order to help Japanese companies overcome the decline in exports and the limited access to credit. That's when quantitative easing policies were adopted, like issuing long term government bonds, printing money and buying banks and financial institutions bad debt in return for shares, stocks or bonds.                     

The Japanese central bank decided to buy companies' securities and short-term debt in an attempt to pump liquidity into the market, and to buy government bonds that totaled 1.4 trillion yen (15.7 billion dollars) per month from 1.2 trillion yen (13.4 billion dollars) issued previously.

The first quarter of 2009 saw intense struggle for by many Japanese banks and companies to overcome the rout in global demand and the credit crisis which had a negative impact on their income. Thereby, the negative impact on companies' profits focused on providing liquidity to banks in order to reduce the impact of the credit crunch and encourage lending. After interest rates reached 0.10% the central bank did not have any other way to provide liquidity except by buying corporate and government bonds.                     

In the second meeting held by the central bank in 2009, came the announcement of buying 1 trillion yen (10.7 billion dollars) in bonds from financial companies with "A" rating as of the 4^th of March and until the end of September. In addition to that, the central bank said it will purchase shares owned by lending banks in order to provide extra liquidity, a measure previously taken in the period from 2001 to 2004. In less than a month the central bank announced that it has increased the purchase of government bonds to reach to 1.8 trillion yen (18.3 billion U.S. dollars) per month.                     

During the first quarter of 2009, the Japanese economy contracted for the fourth consecutive quarter by an annualized 14.2% which was the lowest point the economy has reached during this recession, and later the reading was revised to 11.9%. Adding to that, lower forecasts were given by the central bank to the economy saying it "deteriorated significantly". During this period the Chinese economy started to stabilize and had increased its demand on the Japanese exports, becoming the main trading partner for Japan replacing the United States.                     

Since the beginning of the first quarter Japan is witnessing a significant deterioration in prices, especially when compared to the same levels seen the previous year. That was due to the fall in raw material prices, as well as commodities and crude oil prices, which traded around $35 per barrel, as a result to the fall in global demand and international trade.                     

As a result the annual consumer price index which exclude food and energy contracted by 0.4%  by the end of the first quarter to be the beginning of a series of declines in the index which eventually led the Japanese economy to fall into deflation by the end of the year.

The second and third quarters of 2009 witnessed relative stability in the performance of the Japanese economy, as the effect from the stimulus plans started to be felt by companies and banks. The borrowing costs declined significantly compared with the levels reached by the end of 2008, while the central bank continued expanding its purchases of securities from companies in order to provide them with extra liquidity. The central bank believed that supporting the financial sector was the best way to help the economy overcome its crisis.                     

The Japanese government announced in April a stimulus package worth 15.4 trillion yen (160 billion dollars) aimed to support the economy which started falling into agony due to weak global demand on its products, while the financial system was still facing many of the problems that deteriorated it in the first place.                     

On the other hand, the central bank upgraded its predictions regarding the future economic performance, expecting the GDP to contract less by 4.2% during the year ending March 2010 as a result to the stability that started to be seen in the economic data released by the Japanese economy which came at times when the effect from the stimulus plans started to be felt.                     

As the economy saw continued improvement in the second quarter, the central bank improved in May its assessment for the Japanese economy for the first time in three years although pointing that the economy is still experiencing weakness, but there is an improvement in both exports and industrial production.                     

Industrial production rose during April and May by 5.9% and 5.8% respectively, as the improvement in the Chinese economy helped increase demand on Japanese goods and thus factories reopened their production lines, especially since inventories started to fall.                     

With the continued stability that was seen by the Japanese economy, the central bank lifted its assessment for the economy for the second consecutive month in June to "stopped deteriorating" to keep that position until August before improving it to "shows signs of recovery". This was confirmed by the Gross Domestic Product (GDP) for the second quarter, which expanded by 2.7%, where the economy was dragged out of the recession that eroded the economic performance of the second-largest economy in the world.                     

The steady improvement in = industrial production continued during the second and third quarters accompanied by slight improvement in global demand, supporting the gradual economic recovery in Japan . But the main problem faced by Japan in this period was the deterioration of the labor sector, as companies continued to witness losses and lower profits, determining them to layoff more workers in an attempt to reduce costs and balance their profit margins.                     

The unemployment rate has taken an upside trend since the beginning of this year. In January it reached to 4.1% and then continued to rise gradually until reaching the highest in six years at 5.7% during the month of July. Despite the improvement in industrial production and exports, companies expand their capital spending thereby refrained from hiring more employees. As a result income fell drastically, determining consumers to change their spending habits; therefore, the improvement in exports was not enough o support the economic recovery of such a large economy like Japan.                     

Another problem emerging from the fall in consumption, which was the decline that started to be seen in prices, since domestic demand on various goods and services fell considerably in addition to the decline in crude oil, commodities and row materials prices compared to the previous year. Those factors increase deflation fears that started to be confirmed only during the fourth quarter of 2009. Annual consumer price index, that excludes food and energy, fell gradually from -0.6% in April reaching to -1.4% in September.                     

By the end of the third quarter of 2009, concerns related to the falling prices started to mount. This determined Japanese companies to reduce production as profits kept declining as a result to the decline in prices, despite of the improvement that started to be seen in exports and consumer spending by the end of the third quarter. The uncertainties surrounding the Japanese and the global economic recovery determine companies to reduce their spending on new factories and expanding production, thereby growth slowed to 1.3% in the third quarter from 2.7% in the second quarter.

The fourth quarter of 2009 was different from the second and third quarters, as tension began to mount within financial markets once again, since several governments and central banks around the world began to reduce their support and started ending some their stimulus measures. This started raising investors concerns about the future of the economic recovery which was seen by mid 2009.                     

Japan 's central bank got affected by the improvement in the economic indicators amid the continuing recovery of the Chinese economy, which helped many global economies start recovering, including Japan . As a result many members from the central bank including Mr. Shirakawa started proposing ways to end some of their stimulus measures. The first step was to stop extending any of the financial programs, then announced plans to stop buying corporate debt and bonds that started in December 2008 and was supposed to expire on December 31, 2009.                     

The decision came at a time when many other countries saw that it's necessary to start ending those stimulus plans before it starts creating new bubbles, since banks increased lending while government budget deficits started rising. Even the G20 discussed the associated risks and asked many countries to develop solid plans on how to withdraw stimulus measures safely.                     

But the central was faced with another impediment when starting to consider ending the stimulus plans, and that is the difficulties the labor market was under, as well as increased deflation risks. There was also the opposition that came from the Democratic Party which managed to take office for the first time ever. They feared the negative impact on the Japanese economy from any collapse in prices if those plans were withdrawn. But the new government led by Io Koio Hatoyama does not have any authority and influence on the Bank of Japan.                     

Another problem for the BoJ was the increase in the yen's value, which reached its highest levels in 14 years against the dollar at 84.79. This definitely hurt Japanese exports, since demand started to fall and Japanese goods became less competitive in the global market. The central bank had to interfere in order to prevent any further rise in the yen's value in foreign exchange markets.                     

This came throughout an emergency meeting held by the central bank on December 2^nd, 2009 in which they decided to provide short-term loans for three months at an interest rate of 0.10% totaling 10 trillion yen, as the bank agreed to accept government bonds, securities and corporate bonds as guarantees for these loans.                     

This was followed by a new resolution, but this time by the Japanese government, which announced a stimulus package worth 7.2 trillion yen (81 billion dollars), from which 3.5 trillion yen went to the region's economies and 600 billion yen to support the employment sector, and 800 billion yen to environmental projects. The government now is working to support the internal front of the country, and intervene indirectly in the foreign exchange markets, in order to weaken the yen against other currencies and get rid of any deflationary pressures.                     

Supporting the government's decision is the continued decline in the annual consumer prices dropped in November by 1.3%, while unemployment reached 5.1% in October and although it started retreating, it remains at elevated levels.                     

This confirms that the labor market and households are still suffering from the recession that's ravished the country and needed a quick government intervention. Yet since this intervention come by the end of the year, the positive or negative impact will only be seen in 2010, the year which everybody hopes will bring not only the end of agony but also prosperity to the second largest economy in the world.     

Australia                      

Australia succeeded to be one of the few economies in the world that was capable of escaping the global financial claws that damaged economic activities in many countries around the world; by avoiding the fall in recession. When 2009 started the state of the economy was not much different from what was seen in other countries, and was on the verge of collapse. Yet Australia proved in 2009 that it was stronger than previously thought.                     

The year 2009 started in distress for Australia, as it was threatened by recession since the economy contracted by 0.7% during the fourth quarter of 2008, while the Reserve Bank of Australia was continuing to implement a series of actions intended to ease the monetary policy in the country, which were the largest of their kind since 1991, when Australia saw its last recession. In December 2008 the interest rate reached to 4.25%, the lowest in six years, from 7.25% in March that year.                     

The ease in the monetary policy adopted by Mr. Stevens the RBA's governor and his team aimed to reinforce households' and businesses confidence, especially after the benchmark stocks index lost 44%, while house prices saw the steepest decline since 1978. All these developments were accompanied by a sharp fall in demand on Australian exports due to weak global demand, forcing many companies to reduce production costs by laying-off employees; as a result the unemployment rate reached 4.6% in December 2008.                     

Thereby, Prime Minister Kevin Rudd allowed for the first time since 2002 the budget to fall into deficit, and on November 29, 2008 the Australian Government adopted a stimulus plan worth 15.1 billion Australian dollars directed to health and education projects in order to ensure 133 thousand jobs, while another 10.4 billion Australian dollars were aimed to support first time home buyers.                     

The first quarter of 2009 was a determining quarter for Australia , because if the economy contracted during that quarter it would've meant that they officially entered the recession. As a result, the Reserve Bank of Australia continued during January its easing monetary policy lowering interest rate by 100 basis points to 3.25%. While the Treasury Minister Wayne Swan announced that the government will spend 12.7 billion Australian dollars directed towards supporting domestic spending, and 28.8 billion Australian dollars on infrastructure projects; thereby, the budget fell into deficit for the first time since 2001-2002.                     

The Australian Government expects that with these plans, 90 thousand jobs will be created in the next two years. Meanwhile, the central bank's forecasts have been showing that without those plans the economy will fall in recession. Therefore, during the central bank's second meeting in 2009 they decided to maintain the interest rate at 3.25%, the first such decision in 7 months. This decision was attributed to the central bank's attempts to restore stability within the Australian economy, and wait until the results of the interest rates reduction to start being seen.                     

The Australian economy experienced considerable volatility in the first quarter, since many economies around the world were already in recession or experiencing a sharp contraction in growth, that determined global demand to fall significantly, reducing companies' profits. Thereby, job terminations continued and the unemployment rose to 5.7% by the end of the first quarter, confirming the downside pattern in which the employment sector in Australia found itself.                     

The weakness witnessed in the labor market was reflected on consumers' spending, where seasonally adjusted retail sales fell for the first time in five months by 2.2% in February, since consumers reduced their spending on clothing and furniture and restricted spending on basic necessities. However, the stimulus plans which were directed to consumers as well as the low interest rates have helped many sectors and compensated for the decline that was seen in exports.                     

The Australian economy record during the first quarter of 2009 a growth rate of 0.5%, managing to avoid falling in recession like many other economies such as the United States , Britain , the euro zone and Japan . However, this did not protect the Australian labor market from being severely hit which was negatively affecting domestic consumption, thereby the central bank and the Australian government continued their easing policies during the second quarter of the year.                     

The second and third quarters of 2009 started with a new cut in interest rates to their lowest level in 49 years at 3.00% as the Central Bank found that the best way to encourage domestic investment and consumer spending is through the reduction of interest rates and by encouraging banks to give loans to help support growth.                     

Then the central bank saw that it's proper to maintain rates steady at those low levels for the next two quarters. However, afterwards a number of problems have emerged, where the central bank started fearing that inflation might exceed the target level set by the bank between 2% to 3%. Inflation was a result of the stimulus plans which increased money supply in the market.                     

The improvement seen in retail sales during the second quarter of the year increased the downside risks the economy started to face, where retail sales kept rising for three consecutive months reaching to 0.9% in May, confirming that demand on government grants was increasing, and according to the balance between supply and demand the increase in demand is capable of raising product prices, especially since the recovery in the Chinese economy and the Indian economy in that period helped increase demand on the Austrian exports.                     

Despite those fears, the central bank did not take any action that would work to ease these concerns, since the first priority was to maintain stability that started to be seen in economy and overcome the financial crisis which the global economy was threatened by with minimal losses. This required the central bank to maintain interest rates at their lowest levels, and continue to implement facilitates in the banking sector in order to encourage lending. As for inflation, the central bank assured that the current slowdown in the economy as well as lower commodity prices around the world, including crude oil, will dampen inflation.                     

Growth rates during both the second and third quarters supported the direction taken by the government and the RBA's monetary policy, despite the continued weakness in the labor market where the unemployment rate reached the highest level in 2009 at 5.8% during the third quarter. However, the central bank pointed out that this rise in unemployment reflected their previous expectations and that the gradual improvement in various sectors will help improve conditions in the labor market.                     

GDP in the second quarter recorded a growth rate of 0.6%, ensuring that the economy overcame the crisis, and that the first quarter was the weakest, thereby the central bank's outlook started improving. Yet the third quarter saw a slowdown in growth to 0.2% due to decline in exports, but this did not prevent the central bank from maintaining its positive outlook on the economy monetary stimulations and the significant decline in interest rates.                     

The fourth quarter began with a surprise decision, where the Australian central bank raised interest rates by 25 basis points to 3.25%, after the bank decided that economic activities in Australia saw visible improvement and that there is no need to keep interest rates at very low levels. With this, Australia managed to be the first country from the G20 able to start raising interest rates during 2009.                     

The stimulus plans that reached to 90 billion Australian dollars in addition to the very low interest rates helped improve the performance of households sector which started spending again, thereby retail sales managed to improve once more in the fourth quarter. Meanwhile, house prices have risen 10% in 2009 due to increased demand after the government facilitated loans for first time buyers.                     

Raising interest rates by the Australian central bank did not stop there. The first rise was followed by similar decisions in the following 2 months, each raised by 25 basis points, where it reached to 3.75%. With this Australia became the first country in the world to raise rates for three consecutive months in 2009. Those decisions were supported by believes from the central bank that keeping rates low will permit inflation to start threatening the economy and creating a new economic bubble.                     

Unemployment rates were stable during the fourth quarter of 2009 around 5.7%; thereby, the central bank expressed no fears concerning the labor market, since it was considered to be within the ranges previously expected. Inflation was the primary problem which Australia started to face in the fourth quarter, where prices rose by 3.8% exceeding the comfort zone between 2 to 3%, especially since various sectors started recovering, increasing pressures on inflation. The solution was to start raising rates, since the increase in the Australian dollar value by 29% in 2009 was enough to contain the rise in prices.                     

The Australian economy under the leadership of its central bank found the ideal formula to overcome the worst global financial crisis since the Great Depression, recording growth throughout entire 2009. The year ended with interest rates at 3.75%, the level which everyone believes will sustain economic growth and support various sectors, and at the same time manage to avoid inflationary threats, at least over the medium term.

China :                     

The Chinese economy appeared to be leading the recovery in the Asian region and in the world as well. In fact, China is the world's fastest growing economy and it managed to revive through the worst stage of the financial crisis, backed by the government's stimulus plan and the exceptional monetary policy adopted since the beginning of recession last year.                     

The Chinese economy suffered from the global recession, since growth is based on exports, which declined sharply alongside falling world demand that was hit by the worst recession since 1930's. During the first quarter, exports showed much deterioration, leading to a slowing growth, and then deteriorations eased in the following quarters, after the global recession found the bottom from where it started to pick up.                     

Since the financial crisis began last year, the Chinese government started taking steps to support the economy, after losing the great support of exports. The government unveiled its stimulus plan in November 2008, providing 4 trillion yuan to be focused on supporting the interior front, in order to offset the drop in overseas shipments.                     

The first quarter of 2009 was gloomy, carrying pessimistic fundamentals showing the world's third largest economy expanding in the slowest pace in seven years. On the other hand, exports started to show sever declines and deflation risks continued to weigh on economic activity. Companies were forced to layoff workers to reduce costs, after losses incurred since the beginning of the financial crisis.                     

Inflation cooled since the fourth quarter of 2008 and consumer prices continued to record negative readings through the first quarter, as demand for energy, raw materials and primary goods slipped alongside shrinking major economies and contracting manufacturing sectors around the world.                     

Energy prices declined from its high records witnessed last year that was followed by a drop in producer and consumer prices. This year started with a positive CPI reading as consumer prices gained 1.0% in January. The effect of weak demand and low prices began to appear in the following months, having the CPI index declining 1.6% in February and 1.2% in March, to end the first quarter with signs of deflation threatening China.                     

Exports fell 17.5% in January, after falling 2.8% in December last year. Overseas shipments declined 25.7% during February that was followed by a 17.1% declined in March, to extend the export sector's losses and making it harder for the Chinese economy to fight the pressures of the recession.                     

Moreover, the nation's industrial output contracted alongside weak demand. Companies were forced to reduce production and started to depend on inventories, since demand was unstable and the global outlook was gloomy. Despite that manufacturing output slowed, we didn't see the Chinese industrial output recording negative readings this year.                     

China 's industrial sector rose 3.8% in January and February from a year earlier, slowing from 5.7% in December; manufacturing output inclined 7.3% in March less than forecasts, as exports plunged pressuring manufacturers to reduce production and shutdown factories or production lines.                     

Unemployment settled at 4.3% from the first quarter till the fourth quarter and the Chinese government started working on providing the 9 million stimuli according to the adopted plan. However, retail sales fell as domestic demand weakened and prices dropped sharply.                     

The effect of the government's stimulus package didn't appear in the first three months of this year, so deteriorations dominated the first quarter and it was expected to see a slowing growth.                     

China 's economy expanded 6.1% in the first quarter of 2009, the slowest pace in seven years as the economy lost two main pillars for economic growth; the manufacturing sector and exports. Sinking exports pulled the nation's gross domestic product lower than levels witnessed in the past two years, keeping in mind that the Chinese economy grew 9% in 2008 and 13% in 2007.                     

Second and third quarters were carrying more optimism as economic growth accelerated; getting so close to the government's target in the second quarter, then growth rate exceeded the predetermined target in the three months to September. Exports couldn't play the anticipated role in the recovery during 2Q even if exports reached the bottom and the worst stage of the crisis has passed.                     

Shipments showed improvements in the third quarter along with signs of improvement in the U.S and Europe , which helped the Chinese economy to grow at a faster pace.                     

Deflation risks remained a challenge for monetary policy makers in China during the second quarter, especially with commodity prices falling from high levels witnessed in 2008. Consumer prices declined 1.5% in April and 1.4% in May, while it dropped 1.7% in June.                     

Yet, global demand began to recovery, and the effect of the world stimulus plans started to appear, as conditions in financial markets stabilized and demand in major markets picked up after falling sharply. Thus, the decline in consumer prices moderated, with consumer prices declining 1.8% in July and 1.2% in August, before falling at a slower pace of 0.8% in September.                     

The second quarter carried the worst for Chinese exports, especially with weak demand from the nation's main trade partners such as the U.S and Europe . Shipments fell 22.6% in April from a year earlier; they dropped 26.4% in May to record the sharpest declined in 2009, and slipped 21.4% in June.                     

The drop in exports eased to 23.0% in July and fell 15.2% in September, as demand from Japan , the U.S and Europe continued to increase, giving hope for Chinese exporters to realize higher earnings and offset losses incurred in the beginning of the year and the end of 2009.                     

On the other hand, the government's stimulus plan managed to stoke domestic demand, as retail sales gained 14.8% in the April, before climbing 15.2% in May and 15.0% in June, indicating stronger domestic spending; it's worth mentioning that unemployment rate settled at 4.3% and the government continued to work on its plan to provide jobs.                     

Retail sales continued to advance, rising 15.2% in July and 15.4% in August, before they jump 15.5% in September, which is indicating that the government's stimulus package managed to achieve its main target of supporting the interior front and offset the drop in exports.                     

Industrial production rebounded with 8.9% in May from 7.3% in April and it rose 10.7% in June, as companies began to replenish inventories and respond to recovering demand. Manufacturing output continued to recovery, rising 13.9% in September, since manufacturers witnessed exports recovering and demand picking up.                     

Hence, China 's gross domestic product grew at faster pace in the second quarter at 7.9%, while the government's target was 8.00%. Economic expansion accelerated to 8.9% in the third quarter, proving that China is leading the recovery in the Asian region.

The fourth quarter came with a bright future outlook along with expectations for accelerating economic expansion. Deflation risks eased and consumer prices started recording their first positive reading in the year in November. Exports continued to advance supporting further the recovery.                     

Exports continued to improve especially with the government keeping the yuan's value stable against its American counter part, that was why the G20 summit called to loosen reins on the yuan, while Premier Wen Juabao refused giving a chance for exports to rebound, in order to avoid a strong recovery based on solid exports, besides securing social stability and job gains.                     

As a result, exports declined 13.8% in October that was followed by a decline of 1.2% in November, the least since the beginning of this year, to prove the success of the Chinese stimulus plan, which managed to support the world's third largest economy to find its way around the global recession.                     

Recovering exports came along increasing demand, which was followed by more cheerful fundamentals concerning the industrial sector; the manufacturing output rebounding by 16.1% in October and 19.2% in November providing signs of a strengthening recovery.                     

The business sector also showed signs of recovery backed by record lending and low borrowing costs; it's worth mentioning that new lending topped the government's target of 5 trillion yuan for the year in May, and new loans recorded 259 billion yuan in November.                     

Chinese officials indicated they intend to tighten lending terms, after new loans in the first 10 months of this year recorded 8.92 trillion yuan ($1.31 trillion). On the other hand, record lending helped companies, especially small ones, to survive trough the harshest stage of the worst financial crisis since WWII.                     

Such credit easing policies and increasing demand for loans led to excessive liquidity in the financial system that resulted in higher stocks and asset prices. The properties market attracted more investors, especially with the government supporting the sector that led to increasing house prices more to a limit that doesn't reflect true demand for stocks or properties.                      

Excessive liquidity resulted in fears of a forming asset bubble that represents a challenge for recovery. The Chinese government may not be able to withdraw liquidity from the markets, as this may affect economic growth negatively.                     

Consequently, the government started to adopt new monetary policies focus on the real economy and tightening credit conditions, in order to limit credit growth. The Peoples Bank of China said in December that commercial banks will suffer for a while from the negative effect of bad debt that came due to increasing lending and loose credit conditions.                      

Eventually, the Chinese government ensured that it will keep economic policies stable next year, hoping to see exports getting stronger that may guarantee a strong recovery for the world's third largest economy to continue leading the recovery in the Asian region.

ecpulse.com