Bank Negara predicts slight pickup in ASEAN growth

Bank Negara predicts slight pickup in ASEAN growth

KUALA LUMPUR (AFP): Members of the Association of Southeast
Asian Nations (ASEAN) will enjoy slightly higher average economic
growth of 7. 3 percent in 1997, but their collective current
account deficit will worsen, Malaysia's central bank forecast
over the weekend.

Bank Negara also warned that ASEAN and Newly Industrializing
Economies (NIEs) both faced problems in sustaining growth,
maintaining competitiveness and fighting asset inflation.

In its annual report, Bank Negara said five of the seven ASEAN
economies averaged 7.2 percent gross domestic product growth in
1996, slowing from 8.0 percent in 1995 as exports slackened.

ASEAN groups Brunei, Indonesia, Malaysia, the Philippines,
Singapore, Thailand and Vietnam.

Bank Negara excluded tiny Brunei, for which no data were
available, and classified Singapore among the NIEs, along with
South Korea, Taiwan and Hong Kong, which averaged 6.0 percent
growth last year.

"For 1997, output growth in the Asian NIEs and ASEAN countries
is expected to be sustained at 6.1 percent and 7.3 percent
respectively, with a recovery in export growth and stronger
domestic demand, particularly investment expenditure," Bank
Negara said.

Bank Negara predicted 8.0 percent output growth for Malaysia,
6.8 percent for Thailand, 7.8 percent for Indonesia, 6.0 percent
for the Philippines and 9.5 percent for Vietnam this year.

It forecast 7.0 percent growth for Singapore, 5.0 percent for
Hong Kong, and 6.2 percent each for Taiwan and South Korea.

However, the report cited "downside" risks such as labor
unrest in South Korea and Thailand's vulnerability to its banking
sector's heavy exposure to the property sector and speculative
pressure on the US$4.9 billion last year, mainly due to higher
capital imports by Indonesia, Malaysia, the Philippines and
Vietnam.

Thailand's deficit was expected to narrow slightly to $14.8
billion from $15.0 billion in 1996 due to a recovery in export
growth and subdued increases in imports.

The Asian NIEs were forecast to end 1997 with a current
account surplus of $5.8 billion from a deficit of $0.8 billion in
1996 as their exports pick up.

The report warned that the economic slowdown of last year was
not solely due to a cyclical weakness in global demand for
semiconductors, and called for structural reforms.

"It became apparent that countries in the region were also
losing their traditional comparative advantage of low labor costs
due to rising wages in a tight labor market situation," the
central bank said.

In some countries, rising production costs were aggravated by
asset price inflation, inefficient public utilities and poor
transportation and infrastructure, Bank Negara said.

Regional economies are confronted with competition from
emerging low-cost production centers in other parts of Asia, such
as India and Cambodia, as well as eastern Europe which are vying
for a bigger share of foreign investments.

"As the next millennium approaches, the main challenge facing
the regional economies is the ability to sustain economic growth
and maintain international competitiveness," Bank Negara said.

The report predicted that average inflation in the five ASEAN
economies would moderate to 5.4 percent in 1997 from 6.1 percent
last year with food prices expected to rise more slowly due to
good harvests.

But the NIEs would see consumer prices rising at a faster rate
of 4.4 percent, up from 4.2 percent in 1996, in response to
stronger domestic demand, it said.