Green shoots suggest stabilisation in Asia-Pacific

Evidence of "green shoots" -- early and tentative signs of macroeconomic stabilisation -- has surfaced in the most recent data on the Asia-Pacific economies. Could this be the prelude to recovery? Statistical analysis suggests that the region may have bottomed out in fourth quarter 2008, but the risks to recovery remain significant.

Several indicators, both real and financial, have seen a slowdown in the rates of decline after virtually free-falling in the fourth quarter of 2008. Some have even changed direction, but it is too early to determine how sustainable these trends will be.

Analytically, the focus has been on the "second derivative" or the "rate of change of the rate of change", which tells us how much more slowly an indicator is declining. A widely used proxy for this is the seasonally adjusted annual rate of growth (SAAR), which measures how much the indicator has changed month-on-month or quarter-on-quarter after allowing for seasonal effects (which are automatically eliminated when change is measured year-on-year).

To look for evidence of stabilisation in Asia-Pacific, Standard & Poor's measured the month-on-month SAAR of two critical monthly indicators -- exports and industrial production. When we computed the rates from the beginning of 2008 until the latest available (typically March 2009) a clear pattern emerged for most countries. In Table 1, we report the average month-on-month SAAR for 14 economies in the region for three two-month periods. The first is July-August 2008, in which virtually all the countries saw a transition in these indicators from positive to negative. The second is November-December 2008, during which the indicators reached their lowest levels. The third period is the most recent for which data are available, February-March 2009. It is the comparison between the second and third periods that suggests economic activity has begun to stabilise in the region.