Goldman Sachs cuts Asia GDP forecast

Goldman Sachs cuts Asia GDP forecast

SINGAPORE (Dow Jones): Goldman Sachs has lowered its 2001 economic growth forecast for Asia (excluding Japan) to 5.7 percent from 6.1 percent, citing the region's sluggish domestic investment.

"After a surprisingly sharp rebound in 1999, the pullback in recovery momentum we have been expecting is starting to materialize," Goldman Sachs said in a quarterly report.

The 5.7 percent forecast for 2001 represents a full percentage point slowdown from the 6.7 percent growth rate expected this year.

The biggest drag will come from South Korea, Thailand and Indonesia, where excess production capacity and problem loans in the banking system are still unresolved, the report said. Restoring balance-sheet health will require "time and more public money," the report added.

Weak domestic demand across the region is expected to keep inflation in check, giving central banks room to keep interest rates low to support financial system restructuring, according to the report.

A slowdown in the growth of money supply has created a deflationary bias for most of the region which should persist in the absence of global monetary easing, the report said.

The exceptions are China, Hong Kong and Singapore, where domestic demand is beginning to pick up with the start of a new credit cycle, the report said.

Goldman Sachs said the biggest risks to its forecast are a sharp slowdown in global technology spending in 2001, a premature credit tightening by central banks, and a failure by governments to ease fiscal policies when necessary.