Why Asia Can’t Pull Global Economy Out of Crisis

Asian economies, which powered the global recovery following the 2008 financial crisis, are unlikely to pull the world out of its current slump, given the inadequate response from policymakers in the region, analysts told CNBC.

Asia, led by China, has been one of the major drivers of global growth in recent years, but now the region's powerhouses are themselves struggling with lackluster growth rates and many governments are unwilling or unable to boost their economies.

"I think it's fairly clear that policy conditions are not sufficiently loose to generate strong sustainable recovery anywhere in the region right now, " Robert Prior-Wandesforde, director, Asian economics research at Credit Suisse, told CNBC.

"China, India, South Korea, and Taiwan — all these economies could do more in the way of easing, " he added.

While some central banks in the region have started lowering interest rates to support their economies, recently seen in the Bank of Korea's 25 basis point rate cut on Thursday, governments have stayed clear of aggressive easing both on the monetary and fiscal front.

This has surprised some economists who believe Asia is not in a position to save the day for the global economy this time around.

"We have gone through a couple of quarters without much on the policy front; not just in China but elsewhere in Asia and we're scratching our heads a little about that, " said, Paul Gruenwald, chief economist, Asia Pacific at ANZ Bank.

Policymakers in the world's second largest economy China — which is expected to grow at its slowest annual pace in over a decade this year — last cut interest rates in July and the reserve requirement ratio (RRR) for banks in May.

"Our China economists have been calling for a cut in the RRR for a couple of months now and it doesn't seem to be happening … we're a little surprised at the lack of policy response, " Gruenwald added.

While the country has launched some stimulus measures like $150 billion in infrastructure spending, it has avoided a repeat of the big bang package launched in 2009 on concerns of stoking inflation and reigniting the property market.

World's Growth Engine Stutters

Asia's slower-than-expected recovery prompted major institutions including the International Monetary Fund (IMF) and the World Bank to downgrade their outlook for the region this week.

The World Bank, for example, cut its forecast for economic growth in developing East Asia to 7.2 percent from an earlier projection of 7.6 percent. While the IMF, slashed its growth forecast for China and India to 7.8 percent and 4.9 percent, from 8 percent and 6.1 percent, respectively.

Separately, South Korea's central bank on Thursday cut its growth forecast for 2012 to 2.4 percent from 3 percent and for next year to 3.2 percent from 3.8 percent.

"The bottom line from the (Bank of Korea) downgrade is that we're going to see a very slow pick-up in growth across the region, " said Ronald Man, Asia-Pacific economist at HSBC.

For Asia to emerge from this patchy recovery there needs to be resurgence in demand out of China, analysts said.

"The emerging world by and large is depending on supplying products to China ... if China's not spending it's going to hurt the rest of Asia, " said Tim Condon, head of research, Asia, ING Financial Markets.

—By CNBC Asia's Ansuya Harjani