Internal factors can derail ASEAN growth

Internal factors can derail ASEAN growth

SINGAPORE (AFP): Although the engines of Southeast Asian economies will continue to power ahead in the second half of the year, driven by strong intra-regional trade, domestic political uncertainties could nonetheless derail growth, economists have warned.

"It's more a function of local factors which will probably affect sentiment," said Song Seng Wun, a regional economist at research and brokerage house G.K. Goh.

"Domestic demand, which has been supporting growth recovery, may be capped by the increasing political uncertainty," he said.

Indonesia, being the most populous country in the region, wields the biggest influence on the fortunes of its neighbors, analysts say.

Three years after the Asian financial crisis struck, the Indonesian economy is still in limbo, with national debt accounting for more than 80 percent of its gross national product. This is despite a US$46 billion bail-out package from the International Monetary Fund.

"Domestic events will determine outlook," warned investment research house Vickers Ballas in its latest outlook for the regional economies.

"The government remains committed to economic reform, but must speed up implementation to regain investors' confidence," it said.

President Abdurrahman Wahid's efforts to push ahead with vital economic reforms have been hampered by ongoing religious and ethnic tensions, economists said.

For all the despair surrounding the Indonesian economy, economists noted some positive signs, including a 75 percent jump in first quarter oil exports over 1999, and a 30 percent rise in non-oil exports.

Vickers Ballas is projecting Indonesia's economy to grow 3.9 percent this year, down from its previous forecast of 4.2 percent but up from last year's growth of only 0.3 percent.

Thailand, the country that dragged the region into financial meltdown after the collapse of the baht in mid-1997, is recovering steadily on the back of strong exports.

Singapore's economic recovery remains on track, and the government has revised upwards its full year growth forecast to 5.5-7.5 percent from 4.5-6.5 percent previously.

The new forecast, which came after the economy grew 9.1 percent in the first quarter of the year from 1999, takes into account of the possibility of a hard landing in the US economy.

Vickers Ballas has revised downwards it growth forecast of the Philippines' economy to 3.3 percent, from 3.9 percent.

"The concern is growing political unrest, which has affected investors' confidence and led to a weakening peso," it said.

The Malaysian economy is expected to rise 7.4 percent this year, up from 5.6 percent in 1999.

The United States remains the biggest export market for the region, but waning dependence on the Americans will mitigate the impact of a slowdown in the world's largest economy, economists said.

"While the US remains the single largest market for Asia's exports, the links between the US economy and Asia have weakened considerably over the past decade due to the rapid rise of intra- regional trade," Vickers Ballas said.

Japan's continuing economic recovery and expected strong growth within the European Union will make up for the slack in US growth, economists said.

"We see Japan and EU doing better. That will provide export markets for Asia," said Gerard Teo, a Singapore-based regional economist and strategist for ABN Amro bank.