Deutsche Bank predicts Asia sharp acceleration

Deutsche Bank predicts Asia sharp acceleration

Reuters, Singapore

Deutsche Bank's Asian chief economist, Michael Spencer, staked a claim to having the region's most optimistic growth forecasts on Tuesday arguing for a sharp acceleration beginning later this year and extending into 2003.

"U.S. and EU recovery early this year will add to domestic demand to bring surprisingly strong growth in Asia this year," Spencer told a seminar of bankers and investors.

"We have forecasts of 6.5 percent growth in Korea this year, five percent in Malaysia and 4.5 percent growth in Singapore," Spencer said.

The South Korean government expects four percent economic growth this year, Malaysia is currently forecasting around three percent and Singapore's official forecast is for between minus two and plus two percent change in gross domestic product (GDP).

"For half of the countries in the region we have the strongest forecast on the Street," Spencer said.

Expansionary fiscal policy and looser monetary policy will continue to support growth in the region in the first half of 2002, Spencer argues, then a pick up in the United States and Europe will begin to drive demand for Asian exports.

This external demand will in turn add a further boost to domestic consumption and investment culminating in a very strong growth outcome next year.

"We expect to see a sharp increase in GDP growth in Asia next year," Spencer said.

The Deutsche Bank economist dismissed concerns that China's entry into the World Trade Organization would harm the region.

"Our analysis suggests that most Asian countries will benefit from China's opening-up, if they allow investment to be dictated by comparative advantage. India, Indonesia could be the big losers though," Spencer said.

The biggest risk to the positive outlook for the region was Japan where any political or economic crisis could change the outlook mainly through its impact on U.S. and European growth.

Peter Redward, Deutsche Bank's Asian currency strategist argued for a similar positive view on the outlook for the region's currencies, especially against the U.S. dollar.

"We expect Asian currencies to outperform the Japanese Yen in early 2002, strengthening against the U.S. dollar as the year progresses," he said.

The currencies are all likely to benefit from high levels of foreign exchange reserves and positive current account balances.

The key risk is a further weakening in the value of the yen but its impact on Asian currencies depended on the pace of the fall. Deutsche Bank is currently forecasting a 140 yen to the dollar rate in 12 months compared with around 131.25 on Tuesday.

"In the short term Yen weakness will continue to pressure Asian currencies," Redward said.

For the Singapore dollar the Bank is forecasting a rate of 1.74 to the U.S. dollar in 12 months against 1.83 today.