Exports expected to booost battered Asian markets

Exports expected to booost battered Asian markets

SINGAPORE (Reuter): Battered financial markets around Asia
should get some relief in the months ahead as cyclical upturns in
demand for Asian exports aid growth throughout most of the
region, economists say.

"Encouraging trends in stocks and production in the OECD
countries point to higher demand for Asian exports during the
rest of 1997," said Larry Hatheway, chief East Asia economist at
UBS in Singapore.

"The electronics cycle, in particular, appears increasingly
favorable. An expected export turnaround will result in higher
gross domestic product (GDP) growth throughout most of Southeast
Asia."

The recent currency shakeout ultimately means more competitive
exports and this, on top of improving overseas demand, should
allow countries like Thailand and the Philippines to rein in
their current account deficits in the longer term. The same goes
for Indonesia and Malaysia but to a lesser extent, analysts said.

Asset price inflation will continue to be a problem,
particularly in Singapore, Malaysia and Hong Kong. But with
capital inflows tailing off following the currency crises, the
problems of raging asset price inflation should be dampened.

In the region as a whole it is Thailand which has seen the
biggest currency adjustment, over 20 percent, and is in the most
trouble economically.

"Having taken the biggest hit on the exchange rate there is
still no real sign of interest rates coming down quickly," said
Chiang Yao Chye, head of Asia Pacific research at CIBC.

"As long as Thai rates stay at these levels it's going to
depress all activity, whether it's on the asset side or the real
side. The rest of the region is certainly not as badly off."

As one analyst remarked, "Fundamentals always matter, but in a
currency crisis investors view any change in economic indicators
under a magnifying glass."

Following is a brief look at the state of growth in each of
the economies caught up in the recent currency turmoil.

Thailand

Most analysts have trimmed projections of Thai GDP this year
to 3.00-4.00 percent after the July 2 baht float from their
earlier forecasts averaging over five percent.

But investment bank Merrill Lynch's latest research says the
economy should pick up to post a 6.3 percent expansion in 1998 as
the baht regains stability.

"Exports would likely be the main engine, underpinned by
cyclical rebound in electronics, a slightly more competitive
currency, slower wage growth and restructuring that are already
forced upon the lower-end industries," Merrill said.

A central bank spokeswoman said this month she expected the
bank would need to scale down its earlier 5.9 percent GDP growth
projection for 1997, but she declined to say by how much.

Real GDP growth in Thailand in 1996 was 6.4 percent.

Philippines

Not unusually, government officials are more bullish for the
economic outlook than analysts.

Central bank governor Gabriel Singson said last week, "The
fundamentals remain ... sound and good" while President Fidel
Ramos said there was no need to change the key economic targets
for this year.

But economists were not as sanguine and Emilio Neri, a senior
economist at the University of Asia and the Pacific, said short-
term adjustments will lead to a slowdown. Analysts are looking
for between 5.5 and 6.0 percent growth in 1997.

"The growth rate will be flat this year if not decelerate a
bit," he said, adding that the slowdown should be a welcome
breather for the economy after five years of steady growth.

Real GDP growth in the Philippines in 1996 was 6.4 percent.

Indonesia

The impact of the rupiah depreciation is not seen having a
material effect and analysts say the economy remains on a steady
growth path with virtually no signs of a slowdown.

"Indonesia managed a soft landing last year and looking at the
monthly indicators so far it appears to be that we have a very
nice sideways trend in growth," said Christa Marti, senior
economist at UBS in Singapore. She was looking for growth to
remain unchanged at the 1996 level this year and possibly next.

Real GDP growth in Indonesia in 1996 was 7.8 percent.

Malaysia

Government backed think-tank the Malaysian Institute of
Economic Research said last week that it expected GDP to grow by
8.2 percent this year, but many analysts disagree and are looking
for growth this year more in the region of 7.6 percent.

Earlier this year manufacturing output grew faster than sales
and this led to a rise in stocks. This points to a slowdown in
manufacturing output in the coming months which will impact on
overall activity despite a possible modest upturn in export
growth, analysts said.

Real GDP growth in Malaysia in 1996 was 8.2 percent.

Singapore

Here, the recovery in the electronics sector is crucial and
the strength of non-oil exports together with the recovering
electronics sector should boost overall output.

The government is projecting 1997 GDP at between 5.00 and 7.00
percent but analysts are on the whole bullish and looking more to
the upper end of that range. The average forecast settles around
the 6.8 percent level.

Real GDP growth in Singapore in 1996 was 7.0 percent.

Taiwan

Analysts generally concur that Taiwan's economy is launching a
sound recovery from its 1995-96 slump, although they differ on
the exact extent of the recovery.

The economy broke out of the slump by posting strong 6.83
percent gross domestic product growth in the first quarter. The
government forecasts full-year GDP growth at 6.24 percent.

Much of the bullish forecast relies on an expected late-year
boom in sales of Taiwan's bread-and-butter electronics industry.

"The economy really cannot be hurt significantly by a fall in
the Taiwan dollar, but it can benefit, especially exports," said
Daniel Chen, chief economist at Chinatrust Commercial Bank.

Real GDP growth in Taiwan in 1996 was 5.7 percent.

South Korea

Seoul's economy is struggling under a string of corporate
failures that has hit even the upper echelons of the country's
business conglomerates, known as chaebol.

The economy had otherwise been predicted to bottom out by the
end of the first half with exports recovering on the back of the
Japanese yen's strength and rising export prices.

This year's GDP growth has officially been forecast at 6.0
percent but some analysts are forecasting levels closer to 3.5
percent. Others, including analysts in South Korea, have
predicted growth of up to 6.5 percent for 1997.

Real GDP growth in South Korea in 1996 was 7.1 percent.

Hong Kong

Post-handover measures to cool the overheated property market
are unlikely to have too much impact on growth, with forecasts
for GDP this year centered on a rise of around 5.5 percent. This
level is expected to be sustained in 1998.

"The underlying trend for asset markets in Hong Kong which
include the property and the stock markets is still up, and that
goes into our baseline assumption for GDP growth," said Chi Lo,
regional economist at Deutsche Morgan Grenfell in Singapore.

Real GDP growth in Hong Kong in 1996 was 4.7 percent.