Dear Ali Sakti,
Describing it as the most severe recession since World War II, the International Monetary Fund (IMF) projects the global economy to shrink by 1.3% in 2009, with a slow recovery expected next year. There will be declining output per capita in countries representing three-quarters of the global economy. Growth is projected to reemerge in 2010, but at 1.9% it would be sluggish relative to past recoveries.
IMF chief economist Olivier Blanchard sees growth in advanced countries becoming positive again in 2010, and returning to its normal level around the end of 2010. He said achieving the projected turnaround will depend on efforts being stepped up to heal the financial sector while continuing to support demand through monetary and fiscal easing.
The IMF reports that across the world, banks are limiting access to credit — and will continue to do so — as the overhang of bad assets and uncertainty about which institutions will remain solvent keep private capital on the sidelines. Many non-financial corporations are unable to obtain working capital, and some are having difficulty raising longer-term debt.
In the face of this difficult and uncertain outlook, it argues for forceful action on both the financial and macroeconomic policy fronts, with the greatest policy priority being financial sector restructuring.A bright spot is China. Its economy is reviving, with the three legs of growth — production, investment and consumption — all moving upward. There is confidence that the worst is over for China’s economy, with the first quarter’s gross domestic product growth of 6.1% said to mark the bottom of the country’s cycle.
This is good news for the world, since China will likely pull the global economy out of recession. The likely shape of the global recovery will be a revival in trade and growth among developing countries first, with rich countries following after a couple of years. China is carefully preparing for this role, signing trade and investment agreements with many emerging nations. China is extending trade credit in yuan and signing currency swap agreements with its largest trading partners in the developing world.
This is also significant news for the Islamic finance industry. China is being increasingly viewed as a fertile green field for the sector. It has an extensive economic and trade reach within the developing world, where Muslim states make up a sizeable number. All along, the industry has naturally gravitated to the west due to the ease of doing business there, but it has been finding it difficult to gain traction in a part of the world that is always sure that it knows best and that what it does is the best.
Hong Kong is already trumpeting that it is the Islamic finance gateway to the mainland even though it has yet to build its infrastructure. Labuan International Business and Financial Centre declares that as an offshore entity, it is best suited to serve China, while Singapore hopes to use its extensive economic network within China to best the others. Japan and Korea are at the starting block.
Hence, there are grounds for optimism for Islamic finance practitioners. Just look east.