Shouteast Asia boom likely to continue

Shouteast Asia boom likely to continue

SINGAPORE (AFP): The Chinese economy has passed its peak but real economic growth in Southeast Asian nations will continue to accelerate as inflationary fears in Asia abate, US stockbroker Merrill Lynch says.

Merrill Lynch said in its latest Asian Economic Commentary that while it was true China might still be the fastest growing economy in Asia in 1994, it was "clearly past the peak in its current business cycle."

"The next two-to-three years will see some form of consolidation," the report said, adding the only issue unresolved was whether the Chinese economy would experience a gentle slowdown or a hard landing as in 1989/90.

"If Beijing can maintain its austerity drive for at least another three to six months, the prospects of a soft landing for the Chinese economy would increase," the report said.

The report said there was a risk that China might relax its tight monetary and fiscal grip prematurely under mounting pressure from ailing state enterprises and cash-starved local government.

Gross Domestic Product (GDP) growth in China is forecast to be 10-to-10.5 percent compared with 13.4 percent last year and 12.8 percent in 1992.

S.E. Asia

Merrill Lynch said growth in the Southeast Asian economies of Indonesia, Malaysia, the Philippines, Singapore and Thailand, was expected to accelerate to 7.5-to-eight percent this year and make up for the slack in China.

Excluding the Philippines, GDP growth in the other four Southeast Asian countries would be at an even faster rate of eight-to-8.5 percent compared with 7.8 percent last year and 6.9 percent in 1992.

Average GDP growth for the top 10 major Asian economies, outside of Japan, is likely to be a relatively strong 7.5-to-7.6 percent, almost unchanged from an estimated 7.7 percent last year and 7.4 percent in 1992. The other Asian countries in the review were Hong Kong, India, South Korea and Taiwan.

Merrill Lynch said although strong gross domestic product could produce new demand-pull pressures in the coming 12-to-18 months, inflation should average no more than five-to-six percent this year and in 1995 in most Asian economies.

Even in China, India and the Philippines there were encouraging signs that inflation was now probably close to a peak and price increases should ease in the coming 12-to-18 months, the report said.

China was likely to post the highest inflation rate of 16.6 percent followed by the Philippines with 10.4 percent.

On interest rates, Merrill Lynch said increases could be relatively small.

It said there were few signs inflation would pose a major threat to the extent that it would warrant sharply tighter monetary policies while structural changes in some Asian economies should keep a lid on interest rates hikes.