But now, perhaps, there are signs that East Asia is struggling back to health. Stock markets are perking up; some countries are growing again; the managing director of the IMF, Michel Camdessus, said earlier this week that the emerging market crisis seemed to be over. Is he right? Can we - and they - relax?
The answer is yes, and no. Crises always pass: financial markets cannot managed to sustain high levels of panic for long. Once investors have accepted that they have in all probability lost a lot of money they knuckle down and get on with something else. During the last two years, while Western investors were losing money in East Asia, Russia and Latin America, they were also making it in Europe and North America. By a strange and, in a way, fortunate irony, the losses made in one part of the world have been offset by the gains in another.
But that is to see the world from a Western perspective: you win some, you lose some. If your bit of the world is the loser, the passing of the financial crisis is small comfort. What matters is whether or not you have a job.
Whether you do varies vastly from country to country. We tend to think of the East Asian economies as pretty much a single entity - something almost akin to the European Union or the countries in the North American Free Trade Agreement. But they are not. The countries are different, the cultures different, the levels of economic development vastly different. If you look at these economies there are essentially three stories: one about Japan, one about China and another about the rest of the region.
The Japan story is that things are still getting worse, but at a slower rate than before. Anyone who visits Japan will be hard put to see signs of recession in the streets: everyone seems to be busy, bustling about. But that does not mean that the economy has recovered. Incomes are falling, the official jobless total is rising, companies are going bust. Last year, private demand in Japan fell by 4.2 per cent. That is a larger fall in living standards than we have experienced here in Britain in any year since the Second World War. This year living standards will fall further. There is a further dimension to the Japanese difficulties: falling prices, or deflation. There is no theoretical reason why economies should not enjoy decent growth despite falling prices. That is what happened in Britain during much of the last century. But we have no recent experience of this, and Japan's present deflation follows an extraordinary boom. The borrowing that financed that has not been paid back, making recovery even harder. We experienced negative equity in our housing market and very unpleasant it was. Japan's whole economy is experiencing something like that, with similar disagreeable consequences that will dog the economy for a decade.
All economies - even those in the grip of deflation, such as Japan - are ultimately self-correcting. Leave them alone for long enough and eventually they will recover. Will that recovery come this year, as the Japanese government expects? Or will there be another year of decline, as most private forecasters expect? Faced with this divergence of views, the sensible thing to do is to trust the private sector; the government has been consistently wrong.
But the idea that the Japanese economy will decline for ever and a day is absurd. If you look into the tea-leaves for signals of when the turning- point may come, they are currently giving a murky message. At the moment both Japanese consumers and small firms seem to be becoming a little less pessimistic, though large firms are becoming more gloomy. My guess, talking to people whose judgement I trust, would be that the turning-point will come either towards the end of this year, or in the early part of next. But that is only a guess. I am more sure that when the recovery does come it will be an uneven, halting one. But that is all right. Just stopping being a drag on the region will be enormously helpful to Japan's regional trading partners.
At least there is plenty of data about Japan. If you have figures at hand you can begin to work out whether they are right or wrong. The trouble with China is that you know the data is wrong, but you don't know how wrong.
What do we know about China? It is an enormous economy which had, until a year or so ago, been growing very fast. But in the last year that growth has faltered. We know that prices are falling fast and that this is putting great pressure on businesses. People are either losing their jobs or fearing that they may do so, and as a result savings are shooting upwards. We know that the government is pumping money into the economy in an effort to maintain growth, and that this seems to be having some effect. We know, too, that the government was desperate to join the World Trade Organisation, almost certainly because, in the long term, China needs access to foreign markets and fears that this might be curtailed. But the bid was blocked by the American administration, and we don't know how serious a knock- on effect that may have on business confidence.
Equally, we don't know how serious the present slow-down really is. There are some hard figures. Take textiles. The industry employs more than 16 million people - equivalent to more than half the entire workforce of Britain. Textile exports are running 20 per cent down on last year. It is inevitable that some of those 16 million people will lose their jobs.
Unlike the Japan story, where we know within broad limits what will happen, the China story can develop in a number of different ways. The nightmare is that the country will experience a serious recession next year, while the rest of the region remains fragile. The more hopeful possibility is that the authorities will be able to keep the economy growing, though maybe more slowly, through the next couple of years. But we don't know.
The third story, about the rest of the region, is really a collection of lots of little tales, all different. There are fairly happy ones, such as South Korea, where unemployment has been falling since last autumn and growth has restarted, and Taiwan, which has come through the regional crisis better than any other country. There are seriously glum ones, such as Indonesia, where it is hard to be optimistic about either the economy or the politics. And there are completely flaky ones, such as Malaysia, where various government controls have concealed wider economic weakness. No one knows what will happen in the next couple of years as the controls are eased - particularly as political uncertainty has been piled on top of economic uncertainty. There is simply no common theme.
There has, however, been a common experience. East Asia was, until two years ago, the most successful economic region in the world. For at least two decades (four in some countries, such as Japan), the region had generated the fastest growth and the greatest rises in living standards that this planet had ever known. Most people could remember only success. This had a profound effect on the psychology of the region: people were pretty cocky. Sometimes they were charmingly cocky, and sometimes they were, er, less charming.
That has gone. Travel in the region and you find a variety of reactions: anger, resentment, maybe a touch of judgement and wisdom. Of course, East Asia will again become an economic success story - the vigour of its people will see to that - but it will be a different sort of success: fewer fireworks, more slog. But no, neither they, nor we, can relax. Big bumps still lie ahead.Reuse content