Hard landing for Asia as growth skids

Hard landing for Asia as growth skids

SINGAPORE (Reuters): Economic growth across Asia is grinding to halt as the after-shocks of last year's currency crisis hit across the region, and economists are slashing forecasts for gross domestic product (GDP) on a regular basis.

An expected export boom has not materialized, even though Asian goods are much more competitive abroad given the 15 to 80 percent drop in value of regional currencies from pre-crisis levels.

"In the aftermath of the Asian currency devaluations last year, many commentators in the West and Asia expected a wave of cheap Southeast Asian and Korean exports to come crashing onto the shores of the G7 markets," said Santander Investment economist Nicholas Brooks.

"They're still waiting."

Asian countries are showing a dramatic improvement in balance of payments positions but this has come as a result of collapsing imports, not soaring exports.

Export growth among the countries of the nine-member Association of South East Asian Nations has actually declined in the past few months mainly because of a lack of bank financing and weak Japanese demand for imports as the economy there remains stagnant.

Analysts said while some of the government growth forecasts look hopelessly optimistic, officials are understandably, maybe even unwittingly, predisposed to constructing a best-case scenario.

The latest round of government revisions to growth forecasts are probably doomed to further revision and data already published suggests official estimates of growth contraction this year have already been reached in the first quarter.

Hong Kong

At the end of last week Hong Kong said its economy had contracted by two percent in the first quarter of this year.

Economists say zero or negative GDP is "very likely" this year and the government has said its 3.5 percent growth forecast looked unattainable although it had no revised figure.

"It is highly risky to make a full-year forecast in the current situation," said Hong Kong's Financial Secretary Donald Tsang after the figures were released.

Malaysia

Malaysia has also been notable showing a sharp and generally unexpected slowdown in growth and on Saturday published figures which showed the first quarterly contraction in growth since 1985.

First quarter GDP declined 1.8 percent compared with the same quarter last year, a figure which contrasted sharply with an average forecast by economists for 1.7 percent growth.

Many analysts have started to pencil in a contraction this year and after Saturday's figures forecasts can only be revised down.

Singapore

Despite sound economic fundamentals, affluent Singapore is suffering and some analysts are even talking about a recession, although most are predicting some growth.

Analysts say the fallout from political uncertainties in Indonesia and looming recession in nearby economies, including Japan and China, could inflict more pain in the second half of the year.

A Reuters poll of 13 financial institutions projected growth of 1.6 percent in 1998 which would compare with 1997's 7.8 percent.

Indonesia

Indonesia is perhaps in the most parlous state of the regional economies with its political problems, spiraling inflation, huge overseas debt and banking sector woes.

The IMF's top Asia expert Hubert Neiss has said the economy could contract 10 percent or more this year but some analysts predict a much bigger contraction.

"The economy might contract by between 10 and 20 percent while inflation might reach between 70 and 100 percent this year," said Mari Pangestu, an economist at the Center for Strategic and International Studies.

The Philippines

First quarter GDP growth in the Philippines was 1.7 percent against market expectations for a 2.2 percent figure.

A drop in demand for investment as a result of the Asia crisis a key factor in the slowdown.

Thailand

The Thai baht crisis in May/June of last year sparked the whole regional crisis when the central bank finally caved into pressure and allowed the baht to float on July 2.

GDP is expected to contract between 4.5 and 5.5 percent although this is much worse than the 3.0 to 3.5 percent figure in a February forecast.

But some analysts are more pessimistic and say a collapse in manufacturing output -- which showed a fall of 21.2 percent year- on-year fall in March -- could pave the way for a bigger yearly contraction.

Taiwan

Taiwan stands out in terms of growth and in the first quarter posted GDP growth of 5.92 percent on a year-on-year basis.

On May 21, the cabinet's Directorate General of Budget, Accounting and Statistics decided to revise downward its forecast for full-year 1998 economic growth to 6.02 percent from 6.18 percent, a figure that had been announced in February.

Private analysts said Taiwan's gross domestic growth in 1998 may be cut to around 5.8 percent.

South Korea

First quarter GDP shrank 3.8 percent year-on-year, the worst contraction since 1980.

After the figures a senior Bank of Korea official said GDP may shrink by 3.0 to 4.0 percent in 1998.

But as with Indonesia some analysts are more bearish and cite concern over the health of the corporate and banking sectors.

China

China has targeted GDP growth at 8.0 percent this year, the same as last year's target. But economists said China would face more hurdles to meet this year's goal because of the regional financial crisis.

GDP growth in the first quarter this year was an annualized 7.2 percent, against 8.8 percent in the whole of 1997 and 9.7 percent in 1996.

Australia

The 1998/99 budget forecast GDP growth at three percent, down from the 3.25 percent forecast in the mid-year review.

But most private sector economists do not go along with the official forecasts and look for a lower figures. They said 2.5 percent is the maximum that could be achieved but one was far more bearish and predicted zero growth this year.