Jury out on economy

The Asian Development Bank (ADB) has added its voice to those predicting a worsening Asian economic outlook. Perhaps the only surprise is that the Manila-based bureaucrats did not issue the downgrade earlier.

With the United States, Europe and Japan staring at recession or near-zero growth the world's exporting engine was never going to escape lightly.

The jury remains out. Many U.S. economists are convinced interest rate cuts and steely consumers will ensure a snap back in growth by the end of the year. Europe is arguably less vulnerable to a prolonged slump and Japan, at least, shows signs of addressing its woes. Accept this scenario and the ADB's relatively rosy summary of Asian prospects is credible.

What is certain is that winners and losers are emerging among regional economies. The global electronics slump is creating a rapid industry restructuring. In recent days Taiwan's Acer announced it would quit manufacturing personal computers and U.S. PC-maker Compaq said it would stop making its own microchips. The common thread is of Darwinian market forces crushing over- capacity and weeding out also-rans.

Singapore saw industrial production fall 10.9 percent in May from the same period a year ago while output of electronics plunged 20.1 percent. Industries such as disc-drive manufacturing are seeing a savage clearout in the city state. All this shows is that government-sponsored industrial plans are doomed to fail. Left purely to market forces such factories would have migrated to lower-cost destinations such as Malaysia or China years ago.

China looks a relative beneficiary from the fallout of global over-investment in electronics. It has minimal exposure to the sector and should be a net recipient of cost-focused multinationals relocating operations. While exports are likely to weaken, Beijing should be able to increase domestically generated growth if it gets the policy mix right.

If that scenario holds, Hong Kong faces a loss of altitude but should avoid a hard landing. Further interest rate cuts should assist domestic consumption. A weakening of the mighty Greenback would be a double bonus. Yet if the downward spiral in advanced economies worsens, Asia faces a tough future. Past slumps show that periphery economies are hit hardest as capital is withdrawn and trade barriers are erected. Hong Kong needs to use its free- market credentials to argue strongly against such an outcome, a service that will assist all of Asia.

-- The South China Morning Post, Hong Kong