Asia to grow 5.9% in 2003: Morgan Stanley

Asia to grow 5.9% in 2003: Morgan Stanley

Asia, excluding Japan, will enjoy gross domestic product growth of 5.9 percent in 2003 from 4.5 percent in 2002 thanks to an expected pick-up in exports, said Morgan Stanley Asia's Chief Economist Andy Xie.

The Hong Kong-based Xie said in a recent research note exports from Asia ex-Japan were expected to rise by 9.8 percent in 2003 from 5.5 percent next year and a decline of 6.9 percent in 2001.

He attributed the rebound in exports to increased investment in equipment in the United States and Euroland, as well as increased U.S. consumption.

However Xie cautioned that 2003 would not be a replay of 1999, when the region rebounded strongly from the 1997-98 financial crisis thanks to the U.S. technology bubble.

Instead, he expected the region to still be grappling with falling inflation, and in some cases, deflation, which would compel regional governments to maintain low interest rates.

"We believe interest rates in the region will remain low in an environment of weak pricing power, even as GDP accelerates with trade growth," he said.

He expected short-term rates would likely rise by 20 basis points in 2002 and 30 basis points in 2003.

Xie said the major risk to Asia's rebound would be a major devaluation of the yen by the Japanese government to escape the deflationary spiral in which the country has been caught for years.

"If Japan were to pursue competitive devaluation, the yen could retest its lows found during the Asian crisis," he said, adding another round of devaluation of the regional currencies would follow. -- Reuters