Asia faces up to economic contraction
Asia faces up to economic contraction
SINGAPORE (Reuters): The previously unthinkable is happening in Asia.
As the financial crisis bites, growth in the region which not long ago boasted some of the world's fastest expanding economies is starting to slow down -- fast.
Indeed, in 1998, some economies are almost certain to contract.
The massive drops in regional currencies are forcing governments to tighten their purse-strings and cut back on big projects such as infrastructure development.
High inflation -- imported through weaker exchange rates -- will worsen domestic slowdowns.
"Asia is slowing down. The fact is that the slowdown will be accompanied by unusually high inflation -- and that means stagflation," said Daniel Lian, Head of Asian markets research at ANZ Bank in Singapore.
Not surprisingly, it is the three countries that have received bail-out packages from the International Monetary Fund -- South Korea, Indonesia and Thailand -- whose economies are expected to shrink.
Economists and analysts recently polled by Reuters have been consistently more bearish about the region's growth prospects than official government forecasts.
An economist at a European broking house in Singapore, who declined to be identified, commented: "Privately, the authorities in the region don't believe their own forecasts."
"Indonesia is a case in point. The official GDP (Gross Domestic Product) forecast for 1998 is for zero percent growth, but everyone knows there'll be negative growth," he added.
"In an election year, you're not going to get the government saying, admitting, the economic miracle has imploded," he said.
Analysts polled by Reuters expect Indonesia's economy as measured by GDP to contract by 3 percent to 4 percent in 1998. And some are even more pessimistic.
Ratings agency Standard and Poor's Corp. said recently it expected Indonesia's economy to contract by 5 percent while an economist at one broking firm in Jakarta has said GDP will contract by a staggering 10 percent.
ANZ's Lian is not that bearish. "I'm in the 3 to 4 percent (contraction) camp," he said.
"Don't believe in this stock market rally we've had this week," he said, referring to Asian markets' sharp recovery after the Chinese New Year holiday. "There's more pain to come," he added.
The South Korean and Thai economies are also staring recession in the face.
A Reuters poll of economists in South Korea produced an average forecast of a 0.55 percent contraction in 1998.
"Despite the gains in exports and the current account, 1998 is likely to be a piercingly painful time for the Korean people," Hyundai Securities Research Center said recently.
The Center was actually one of the more optimistic polled, forecasting GDP growth of some 0.8 percent this year. But this compares with a government forecast of 1 percent to 2 percent growth.
The most bearish economist expected a contraction of 3 percent.
"Despite expanding net exports, shrinking domestic demand will crimp economic growth," the Center added.
Several economists have forecast that Thailand's economy -- the first of the Asian dominoes to topple back in July last year -- will contract by some 3 percent to 4 percent in 1998.
Even the central Bank of Thailand expects shrinkage of 0.7 percent, a nasty shock for an economy that had been speeding along at a break-neck pace for years, at times recording double- digit growth.
The central bank's forecast of just 0.3 percent growth in 1997 shows the rot has already started.
Other Asian economies will slow in 1998 but shouldn't actually contract, according to the polls.
Singapore appears to be heading for a particularly sharp slowdown with economists predicting GDP growth of just 3.5 percent in 1998 compared with 1997's 7.6 percent.
The government is expecting growth of 5 percent to 7 percent. Malaysia should see growth of 3.2 percent according to the Reuters polls. This compares with a government forecast for 4 percent to 5 percent.
The Philippines' economy will grow by some 2.2 percent, the polls say, which is largely in line with the government forecast of between 2.4 percent and 3.5 percent.
But the economy that has best weathered the currency storm appears to be Taiwan's.
Analysts expect the economy to expand by a healthy 6.1 percent.
With its massive foreign exchange reserves of some US$83 billion, the country has largely been immune to Asia's financial crisis.
The Taiwan dollar has fallen some 15 percent against the U.S. dollar since last July, but analysts say this reflects the strength of the U.S. dollar globally rather than any fundamental problem with the Taiwanese economy.
Country Estimated GDP Govt. Forecast
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Taiwan +6.1 pct +6.7 pct
Malaysia +3.2 pct +4-5 pct
S. Korea -0.55 pct +1-2 pct
Indonesia -4.0 pct Zero pct
Philippines +2.2 pct +2.4-3.5 pct
Singapore +3.5 pct +5-7 pct
Thailand -3.5 pct -0.7 pct