Haves, have-nots: Asia's outlook

Haves, have-nots: Asia's outlook

SINGAPORE (Reuters): Japan is emerging as the biggest question mark for Asia's economies, most of which are expected to continue to perform poorly over the next six months, according to analysts polled for a Reuters survey.

However, the survey shows the region does have some bright spots.

"The regional economies require a fairly firm growth picture in Japan simply because we are looking at growth in Japan supporting exports in places like Indonesia and Thailand," said Lindsay Coburg, G-7 economist at I.D.E.A. in Singapore.

Towards the end of last year many pundits, including the International Monetary Fund, were predicting that the worst was over for Asia.

Many said Asian exports would become extremely competitive because of the currency devaluations which led to the widespread theory that Asia would be dragged out of trouble by a boom in exports.

This turned out to be quite wrong and some economies have sagged alarmingly as domestic demand slumped and inflation and unemployment soared.

Also, heavily indebted corporate sectors, whose overseas loans were getting ever larger as regional currencies fell, were unable to afford to boost production to take advantage of their strong export position.

All this added up to a sharp slowdown in growth in those countries worst affected by the currency crisis and with the biggest currency devaluations.

This was notable in Thailand, where growth contracted last year by 1.5 percent after growth of five to eight percent in the preceding several years.

The survey showed that the Thai economy is expected to shrink by 5.7 percent this year but return to growth of 1.4 percent in 1999.

Most analysts said the Thai recession would likely bottom out in the third quarter this year but this would be subject to a let-up of the Asian financial turmoil later this year.

"We see the reverse point in the third quarter before the economy recovers into next year. A lot of things would, of course, depend on unpredictable developments in Asia in the next several months," said an analyst at Nava Vickers Ballas Securities.

The surveys showed that four other countries are expected to return negative gross domestic product (GDP) numbers this year.

Malaysia, South Korea, Indonesia and even dynamic Hong Kong are seen in negative territory this year with Indonesia by far the worst case.

The average forecast for Indonesia is for negative growth of around 14.5 percent with contraction of around five percent next year.

"May and June are usually among the most productive months of the year with economic activities at a peak," said one analyst at a large European brokerage in Jakarta.

"In May this year there were massive riots and in June many sectors are still paralyzed by the riots. The forecast has been very pessimistic because of these factors," he added.

But there were some bright spots with China expected to post 7.6 percent growth and Taiwan 5.8 percent growth this year - both close to government forecasts of eight percent and 6.02 percent respectively.

Taiwan has managed to keep GDP growth at relatively brisk levels despite the crisis and most analysts saw the negative influence running its course in time for a 1999 recovery.

Projections for the sub-continent were also encouraging. India is seen growing 5.7 percent this year and 6.2 percent in 1999. Sri Lanka is expected to show 5.5 percent growth in 1998 and 5.4 percent in 1999.