GOVERNMENTS across Asia have pledged a combined $700 billion in stimulus spending and central banks have slashed interest rates to spur growth and cushion the blow of plunging export demand from the West.
Will the moves stave off a lengthy regional recession? Much depends on how Asian consumers and businesses respond to the stimulus measures - which range from construction projects in China to create jobs to cash handouts and loan guarantees in Singapore.
Some analysts say Asia could be the first region to recover from the global crisis later this year because its financial systems are on sounder footing than those in the West, allowing consumers and companies to better take advantage of the public spending and lower rates.
Banks haven't needed massive bailouts, and consumer and bank debt levels are lower than in the US, meaning people and businesses may be more willing to borrow, lend and spend.
'Asia faces fewer structural problems than elsewhere in the world, and the policy easing has a better chance of working here than in the US' said Mr Richard Urwin, who helps manage more than $10 billion (S$15 billion) of stocks, bonds and other investments, including Asian assets, for BlackRock Inc in London.
'It's sensible to expect some gap opening up this year between what's happening in the US and what's happening in this region.'
Still, stimulating domestic demand can only go so far for much of Asia, and a sustainable recovery ultimately hinges on exports. News last week of sharply slowing growth in China, a contraction in South Korea's economy and a record 35 per cent drop in Japanese exports in December only served to emphasize the region's dependence on the rest of the world.
Some economists expect US and European export demand to stabilize by the second half of the year, but if it doesn't, any emerging Asian recovery will almost certainly be scuttled.
'The infrastructure spending does help to provide a short-term boost to the Chinese economy,' said Mr Tai Hui, head of Southeast Asia economic research for Standard Chartered Bank in Singapore. 'But it's taking a big knock in its export sector right now.'
The outlook is overwhelmingly bleak. This year's slowdown will likely rival the 1997-1998 debt crisis as Asia's worst downturn in more than 50 years. Already, economies in Japan, South Korea, Singapore and New Zealand are shrinking.
Asian exports are in a free-fall. Vietnam's exports plunged 24 percent and Singapore's slid 21 per cent. China's exports dropped in November and December for the first time in seven years.
Some of the region's biggest brand names are sliding into the red. Japan's Sony Corp is cutting jobs and projecting its first annual net loss in 14 years. South Korea's Samsung Electronics last week reported its first ever quarterly loss.
China, the world's third-largest economy behind the US and Japan, has led the policy response, announcing in November it would spend $585 billion, mostly on infrastructure development. It's also reducing sales and property taxes. It has lowered its benchmark one-year lending rate five times since September.
But getting Chinese consumers to spend more is a challenge. Many families still feel compelled to save up to 50 per cent of their incomes to pay for health care, education and other necessities.
Beijing has promised to create a social safety net to reduce such burdens.
In Singapore, the government is taking steps to dissuade companies from laying off workers. Last week, it said it plans to subsidise 12 per cent of the first $1,670 of each employee's monthly wages, hike cash handouts to low-income workers by 50 per cent, and increase public sector hiring.
The government will also assume 80 per cent of the risk on private bank loans of up to $3.34 million to help spark lending and investment.
In South Korea, the government is spending $10.2 billion to build and repair roads, railways and ports, tax cuts and other measures to aid ailing business. In a package that still needs parliamentary approval, Japan plans to boost payments to parents who give birth, reduce the unemployment insurance premium and lower taxes.
Taiwan, Malaysia, Australia and India have also announced plans for extra spending. And a collapse in oil prices has eased inflation, giving central bankers room to slash rates.
Japan's central bank, which has cut its benchmark interest rate to 0.1 per cent, expects the economy to contract 2 per cent for the fiscal year through March 2010, but hopes for a recovery to emerge by late this year.
'We're seeing the most powerful, most synchronized fiscal easing Asia has ever seen, and in time, it should generate strong domestic demand and a recovery,' said Mr Robert Prior-Wandesforde, co-head of Asian economic research at HSBC in Singapore.
'In contrast to the West, money isn't going toward bailing out financial institutions, it's being pumped directly into the economy,' he said.
While analysts say it's too soon to see the full impact of the measures, China - a major engine of regional growth - is seeing some early, modestly positive signs. Banks loans are rising. In December, industrial production grew 5.9 percent and retail sales rose 17.4 per cent - both up slightly from the previous month.
Still, with news of job cuts around the region almost every day - and more likely - a jump in unemployment will sap consumer spending and undermine governments' attempts to spur growth.
'They're trying to stimulate the consumer here in the region, but that's going to be difficult if unemployment rises,' said Mr Stephen Corry, head of investment strategy for Merrill Lynch in Hong Kong. 'The economy really hangs on the consumer because the export picture is so bleak.' -- AP