Pacific Rim growth poised to recover

Pacific Rim growth poised to recover

SINGAPORE (AFP): Most Pacific Rim economies are poised for a sustainable economic recovery marked by low inflation in the next two years after growth slowed in 1996, a leading regional think- tank said here yesterday.

The Pacific Economic Cooperation Council (PECC), which groups Asian, North and Latin American economies and Russia, forecast average gross domestic product (GDP) growth of 4.1 percent in the next two years for its members.

While only slightly higher than the 4.0 percent figure for 1996, "the best way to describe such an outcome would be as a high and sustainable plateau," the PECC's annual Pacific Economic Outlook report said.

It rejected fears of long-term economic decline in South Korea or financial collapse in some other countries, and highlighted the sharp drop in inflation to an average of 4.1 percent last year, less than half the 8.6 percent in 1995.

Chen Kang, a forecaster with Singapore's Nanyang Technological University, told a news conference at the release of the PECC report that there was a consensus that "the world is entering a new era, especially from 1997 on, with high growth and also very low inflation."

The electronics slump that hit Asian economies in 1996 "is not forecast to be repeated in 1997 or 1998," said the Singapore- based PECC, a non-government body that includes officials, academics and business representatives from its member-economies.

Twelve of the 20 economies surveyed annually by the PECC suffered slower growth in 1996, but this year the same number are expected to enjoy faster expansion, "which indicates that prosperity will be more widely shared."

Excluding Russia, which is expected to improve but remain in negative territory, average regional growth was set at 4.3 percent in 1997 and 1998.

Japan would see slower 1.7 percent growth this year from 3.4 percent in 1996, but strong performances are expected from the United States, whose GDP would grow 3.2 percent from 2.4 percent in 1996, and other economies.

Top performers this year will be China with 9.8 percent growth, Vietnam with 9.6 percent, Malaysia with 8.2 percent, Singapore with 7.5 percent, Indonesia with 7.3 percent, Taiwan with 6.4 percent, and the Philippines with 6.0 percent, the PECC said.

The report, prepared before the recent Thai financial crisis, predicted 7. 1 percent growth for Thailand this year, higher than more current forecasts.

"China remains by far the world's number one destination for foreign direct investment (FDI)," the report said, predicting actual inflow of FDI into China at US$40 billion in 1997, with Chinese foreign currency reserves reaching up to $150 billion by the end of this year.

The PECC said Hong Kong, which reverts to Chinese rule on July 1, would see 5.1 percent growth this year and 5.2 percent in 1998 from 4.7 percent in 1996 after the "shadow of political uncertainty" ahead of the handover had "evaporated."

Russia would experience an economic contraction of 3.0 percent, but this would be an improvement on last year's economic shrinkage of 6.0 percent.

Latin American countries under the PECC face a mixed outlook, with Mexico forecast to grow 5.0 percent from 5.1 percent last year. Chile's growth would fall to 5.6 percent from 7.2 percent in 1996.

The good inflation performance in PECC countries last year "was not a fluke, but rather signals a new era of price stability," the report said.

Average inflation in PECC economies was predicted to fall to 3.9 percent this year and 3.5 percent in 1998, partly due to "more benign markets for food and energy."

"A combination of higher real output and sharply lower inflation is the stuff of dreams for policymakers, and they can feel justly proud of their achievements -- even if most economic outcomes are beyond their control," the report said.