SE Asian financial crisis to knock global growth
SE Asian financial crisis to knock global growth
LONDON (Reuters): Financial upheaval in Southeast Asia will take its toll on the global economy but the brunt of the impact will be limited to that region, analysts said yesterday.
Japan, beset by economic woes of its own, and Australia, a major exporter to the area, will find their economies under pressure.
Further afield, slowing Asian growth could help restrain inflation -- and interest rate rises -- in Europe and the United States.
"We're going to see much slower growth than most people are forecasting for Southeast Asia and this has not been incorporated yet into forecasts," said Stephen Lewis, chief economist at London Bond Broking here.
"When markets begin to focus on how damaging the financial turmoil there is likely to be, they will take a much more somber view of global prospects for 1998," he said.
Analysts said higher interest rates and stock and currency turmoil in Hong Kong, Thailand, the Philippines, Indonesia and Malaysia will cut consumer demand, investment and exports across the region. Commodity prices could also be dragged lower.
Hong Kong became the latest casualty this week. Its stock market has tumbled 23.3 percent since Monday as interest rates soared and authorities vowed to defend the Hong Kong dollar peg to the U.S. currency.
Hong Kong authorities rejected joining other countries in the region that have devalued to maintain their competitiveness.
Initial forecasts are still being adjusted but analysts said the slowdown in Southeast Asia could chop as much as 1.0 percent off global growth.
Robin Marshall, chief economist at Chase in London, said the obvious casualties were Japan and Australia.
"Globalization has been unfolding on a regional basis," he said. "You're getting increasingly integrated regional economies."
He said the Asian region was the target for around 44 percent of Japan's exports last year.
"That gives you a very obvious exposure in Japan," he said. He expected the Southeast Asian slowdown to cut Japanese growth by around 0.25 to 0.50 percent in the next 12 months.
Marshall said Japan is in a much weaker position to withstand the currency crisis in Asia than the United States was when faced with the Mexican peso crisis of December 1994.
"This is appalling timing for the Japanese authorities," he said.
"Even in Europe and the United States there is going to be some knock-on deflationary effect from the contraction in demand for exports," he added. "Germany actually exports a lot of capital goods to the region."
Francesco Giordano, economist at Credit Suisse First Boston in London, said although Southeast Asian economies may feel the pain, the slowdown could be well timed for the Unites States, taking the heat out of the economy just as inflation risks frothing higher.
"Inflation goes down but growth stays at a reasonable pace," he said.
Credit Suisse First Boston expects the Asian turmoil to depress global growth by around 0.65 percent in 1997 and 1998.