Key Asian economies set for slower growth: Report

Key Asian economies set for slower growth: Report

SINGAPORE (AFP): Tight monetary policies will lead to slower
expansion of key Asian economies this year, but growth will
remain healthy with buoyant investment, a report predicted.

The Philippines is the only exception to the regional trend,
with its 1996 Gross Domestic Product (GDP) set to grow faster at
5.6 percent year-on-year after expanding 4.8 percent in 1995,
Crosby Research Ltd. said.

In its latest quarterly economic review received here at the
weekend, the global investment house analyzed the economies of
China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore
and Thailand.

"Growth will slow this year everywhere except in the
Philippines as tight policy takes hold, but growth levels will
remain high because of Asia's still huge investment pipeline,"
the report said.

China's GDP growth was forecast to slow to 9.5 percent in 1996
from 10.2 percent in 1995, and Hong Kong's to 4.3 percent from
4.6 percent.

Indonesia's GDP was tipped to grow 8.0 percent, compared to
8.1 percent last year, and Malaysia's at 8.6 percent, compared to
9.5 percent.

Crosby predicted that Singapore's GDP growth would slow to 8.3
percent this year, compared to 8.9 percent last year, and
Thailand's to 8.5 percent from 8.7 percent.

"Slowing export growth is the main risk to GDP across the
region and possibly to current account deficits in Malaysia,
Thailand and Indonesia," the report warned.

"The slowdown in global demand for computer electronics is
mainly to blame. Malaysia and Singapore are most exposed to
this," it said, but predicted that demand would recover by the
fourth-quarter of 1996 and rise in 1997.

Crosby said monetary policy would tighten credit and liquidity
growth in all economies except Hong Kong and China.

"Asia's high interest rates are out of sync with those in the
(industrial countries)," the investment house said.

The short-term capital inflows that the high rates enticed
into the region were challenging central banks' monetary
management.

The report implied a greater reliance on administrative
controls such as bank reserve requirement hikes and credit quotas
in the short-term and pressure on currency regimes in the long
term, the report said.

"With export growth slowing and currency competitiveness
having fallen, currencies in most countries will depreciate," the
report said of the currency outlook to year-end. "Appreciation in
Singapore will slow significantly."

Currencies in most Asian economies are managed on a trade-
weighted basis, and if the U.S. dollar strengthens much more than
expected against the Japanese yen and the German mark, the
region's exchange rates would come under pressure.

Crosby described Indonesia and the Philippines as the region's
"best new growth stories because of deregulation and supply side
boosts to growth potential."

A surge in foreign and domestic investments, a recovery in
agriculture, improving infrastructure and a continuing
deregulation of trade were allowing a higher sustainable rate of
growth in Indonesia.

Foreign investment approvals in Indonesia surged to a record
US$39.9 billion last year, compared to $23.7 billion in 1994, and
"we expect growth in new foreign investment approvals to match
1995's increase," Crosby said.

In the Philippines, the recent liberalization of foreign
investment with the abolition of closed sectors and the reduction
in capital requirements will boost the supply-side potential of
the economy and accelerate industrial production, it said.