Soft landing seen for SE Asian economies
Soft landing seen for SE Asian economies
By Anil Penna
SINGAPORE (AFP): Southeast Asia's booming economies appear ready to cool as they enter 1996 after a year dominated by fears of overheating.
Economists tip a welcome soft landing with lower inflation for Indonesia, Malaysia, the Philippines, Singapore and Thailand, with a correction of overheating symptoms that have clouded regional stock markets.
"I would think the fear of overheating was the main theme in the region this year," said Eddie Lee, regional chief economist of Vickers Ballas Investment Research in Singapore.
"Next year we will have increasing evidence that they have started to cool, " said Lee, who expects the Singapore bourse to lead a regional charge in 1996 on strong economic fundamentals.
His forecast is in line with a prediction by Merrill Lynch Far East, which sees key Southeast Asian economies headed for a period of less rapid growth but no pronounced cyclical slowdown.
Merrill Lynch sees 1996 gross domestic product (GDP) growth moderating to 6.5-7.0 percent for Indonesia, 8.0-8.5 percent for Malaysia, 7.0-7.5 percent for Singapore and 7.5-8.0 percent for Thailand.
The Philippines, which has grown relatively slowly, is tipped to accelerate to 5.5-6.0 percent.
Vickers Ballas tips inflation rates in the five economies to average 6.6 percent in the first half of 1995 and fall to 5.9 percent in the second.
High current account deficits and inflation were the chief worries for policymakers in the four developing Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand during 1995.
Their combined current account deficit is projected at US$29 billion in 1995.
The concerns became more pronounced in the wake of the Mexican peso crisis which led foreign investors to focus on the weaknesses of emerging markets.
Bank Indonesia (BI) Governor Soedradjad Djiwandono repeatedly warned of overheating.
In mid-December BI raised the reserve requirements of all banks from two percent to three percent, effective February, after expressing concern at the rate of credit expansion which now runs at 25 percent.
Indonesia's current account deficit is forecast by some analysts to reach eight billion dollars, or six percent of GDP in 1995.
Worries over Malaysia's economic health, including inflation and a current account deficit projected at US$7.25 billion this year, also kept funds out of the Kuala Lumpur Stock Exchange.
The government announced measures to cut consumer credit and slow down consumption and put several giant infrastructure projects under review.
In the Philippines, a rice shortage caused by a first-quarter dry spell triggered a jump in inflation to its highest level for the year of 11.3 percent year-on-year in September.
Fears of an imminent increase in domestic oil prices and an expanded value-added tax due to come into force next year cast a shadow on the economy.
Thailand suffered severe nationwide floods, causing food prices to shoot up. Inflation stood at 5.7 percent year-on-year in the first 11 months of 1995, up from 5.1 percent for all of 1994.
Its current account deficit was expected to reach $12.4 billion, or 7.5 percent of its GDP, in 1995.
The Thai central bank has restricted commercial bank credit extension, foreign currency loans and lending to non-productive sectors by raising reserve requirements and setting growth limits.
But according to Vickers Ballas, the concerns over current account deficits had been overblown.
"They are not caused by over consumption but imports of intermediate and capital goods, productive imports which are part and parcel of a fast-growing and industrializing economy," it said in a report on Southeast Asian economies here.
"They are self-correcting within the framework of high investment rate, export-led growth and high saving rate."
Singapore has no deficit problems, battling instead high business costs and a strong local currency as its economy paused for a welcome breather after two years of double-digit growth.
Abundant liquidity, low interest rates, a rise in domestic consumption, relatively slow increases in wages and overall business costs are foreseen for the city-state, which next year assumes developed nation status.
"Investors will return their sights to the longer-term positives of the region in 1996 after focussing on short-term overheating fears this year," said Jim Walker, Singapore-based chief economist of Credit Lyonnais Securities.
Vietnam, which this year joined the Association of Southeast Asian Nations (ASEAN), continued to grapple with problems of transiting to a market economy including corruption, bureaucracy, dismal infrastructure and a skeletal legal system.
But high growth, estimated at nine percent this year, and its status as an untapped market among more mature ASEAN neighbors kept the investors coming in.