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.