Asia has seen best of growth upturn

Asia has seen best of growth upturn

Reuters Singapore

Asia's economic upturn has put down solid roots, with analysts maintaining forecasts for robust growth in 2004, although activity is expected to moderate next year, the latest Reuters poll of the region's economies shows.

High oil prices, the extent of China's slowdown and the impact of rising U.S. interest rates are the main worries of the region, as they were in May when the previous poll of over 100 analysts in 12 economies was conducted.

Despite the concerns, the region seems to be in good shape one year after emerging from the SARS disease outbreak. Nine of the 12 economies in the latest poll are expected to post stronger growth this year than last.

All economies apart from South Korea's are expected to grow faster in 2004 than their average over the past five years.

But only Indonesia is expected to record faster growth in 2005 than in 2004, and foreign investors have slowed, and in some cases reversed, their investment in the region.

"Already, cracks are appearing: surveys of consumer and business confidence have weakened in most countries, our composite leading index of Asian exports has turned down, and liquidity is evaporating, in line with narrowing balance of payments surpluses," Rob Subbaraman, regional economist at Lehman Brothers, said in a report.

Although efforts to rein in the Chinese economy appear to have taken hold in the past three months, economists still expect growth of almost nine percent this year, little changed from 2003. Growth is expected to slow to around eight percent next year.

"In the first half of the year, many administrative measures were taken to control overheating investment, but these measures will definitely not last for a long time and will be slowly diluted," said Qin Jun, an analyst with Guotai Junan Securities.

China has driven much of the growth in intra-regional trade, so any slowdown in demand would filter through to other Asian economies. The worries have been heightened by the start of a series of U.S. interest rate rises, which could hurt U.S. consumer spending.

"The pace of export growth will be slower in the second half of 2004 and next year as the United States and other leading economies appear to have passed their peak," said Lee Dong-su, an economist at Tong Yang Investment Bank.

"But exports will probably remain healthy and consumer spending is expected to show a mild recovery gradually in the first half next year, helping South Korea achieve an economic growth of above 5 percent," he said.

The weather is reining in India's fast economic growth. Patchy monsoon rains will leave GDP 6.6 percent higher in the fiscal year to March 2005, less than previously thought and compared with 8.2 percent in the previous year, the poll found.

Thailand's growth forecast for 2004 was cut by 0.5 percentage point to 6.5 percent, and it is no longer expected to be the fastest-growing economy in Southeast Asia.

That honor now goes to Singapore, after strong first half growth saw analysts lift their 2004 growth forecast to 7.6 percent. Not only is that the strongest in southeast Asia, but it is second only to China of the 12 economies covered in the poll.

The largest growth forecast upgrade was in New Zealand. Analysts lifted their forecast for 2004 growth by half to 4.5 percent, which would be the strongest in over five years, even ahead of an expected central bank interest rate rise on Thursday.

Despite the persistent worries about high oil prices, currently trading near us$42 a barrel, inflation forecasts have not been marked up significantly.

Inflation forecasts for 2004 were unchanged for China, Korea and Hong Kong from the survey in May. Only two economies -- Indonesia and India -- saw inflation forecasts for this year increased by more than 0.4 percentage points from the May survey.

As well, inflation in most economies next year is expected to be about the same or lower than in 2004.

Analysts expect that traded Asian currencies will mostly end the year stronger than current levels. This would help counter some inflationary pressure from higher oil costs, although the region's central banks have shown a reluctance to embrace currency strength for fear of harming export sectors.

Clothing and footwear prices have been rising in recent months as a pick up in consumer spending -- something many Asian economies want -- has allowed retailers to mark up goods.