Bangkok, Seoul could show signs of recovery soon: Economists

Bangkok, Seoul could show signs of recovery soon: Economists

HONG KONG (Dow Jones): The bottom to Asia's economic contraction is nearest for Thailand and South Korea, according to Credit Lyonnais Asia Ltd.'s chief economist, Jim Walker. But Hong Kong has much further to adjust, he said.

"Certainly in some countries, there are signs of a bottom," he said in a telephone interview with Dow Jones Newswires from Edinburgh, where he is based.

Walker said the first country to enter Asia's crisis, Thailand, could also be the first, along with South Korea, to show signs of recovery.

"Elsewhere, things are much more patchy," he said.

In Hong Kong, for example, there is "a long way to go" in the adjustment process. He said the inability of Hongkong Telecommunications Ltd. (HKT) to get an agreement on a 10 percent across-the-board pay reduction from its employees is proof that adjustment in the territory is proceeding more slowly than the economic textbooks would have predicted, given Hong Kong's currency board system. "Hongkong Telecom has given you an example of how it is long term, not short term," he said.

Walker said the cover on Credit Lyonnais Asia's coming quarterly report will feature a cartoon looking down a canyon but with the sun rising in the background, topped with a caption that asks "Asia Dawning?"

In Indonesia and Malaysia, things are "much more severe," Walker said. Indonesia faces serious social problems, while Malaysia is "just doing the wrong things altogether," the economist said.

Among the indicators Walker is studying for signs of an economic bottoming in Asia is a Credit Lyonnais Securities- developed model on industrial production. He said it shows "there has been a burst of industrial production in Thailand and Korea over the past few months."

Also, he's looking positively at signs of rising unemployment levels in those countries because companies' performance will stabilize when costs fall by the magnitude of revenues.

Interest rates are also in focus, said Walker, noting that when rates edge lower without compromising the exchange rate that will be a sign that capital flight has abated. "We're seeing signs of that in Korea and Thailand," he said.

An expected cut in U.S. interest rates could further stabilize some countries by "mitigating the downturn forces" but wouldn't correct underlying problems, Walker said.