The Financial Crisis in South-East Asia: Its Impact on Austria

The crisis in the Far East could depress the growth of Austria's exports by at most 0.5 percentage points and the expansion of real GDP by 0.1 percentage point to 0.2 percentage points, even under pessimistic assumptions. To the direct effects must be added the indirect effects resulting from lower economic growth in third countries, which by general agreement will be small in the advanced economies of Europe and North America; much will depend, however, on how economic policy, particularly in the monetary sphere, reacts to the deflationary effects of the Asian crisis. Austria's exporters, moreover, will have to cope with strong downward pressures on prices with regard to those products and on those markets where they compete directly with producers from the Far East. The engagement of Austrian banks in the crisis region seems to be rather limited. The conclusion that the Austrian economy's marginal vulnerability in the present situation is due to its limited exposure to this region would be, however, fundamentally wrong. Over the past years, Austria's economy, by failing to take advantage of the market opportunities offered by the booming economies of South-East Asia, has "lost" more growth potential than it can be expect to save this year and possibly next year. If the turmoil in the Far East is only a temporary phenomenon, the crisis could be used as an opportunity to strengthen Austria's position in this region. Such a program, backed by political acumen, might also garner psychological benefits for Austria. On the international plane, there are two approaches to economic regulation. First of all, the creation of the Euro could provide the opportunity to stabilize the exchange rates among the three major currencies in the world. The rise in the value of the dollar since 1995 has been one of the factors triggering the present crisis. Second, the efforts of the Basle Committee on Banking Supervision and of the IMF to strengthen the stability of the international financial system need to be intensified. Giving the BIS and the IMF additional powers of information and supervision might markedly improve the information efficiency of the global financial markets, which in the recent crisis turned out to be low.