Super normal growth in Asia ends: Report

Super normal growth in Asia ends: Report

SINGAPORE (AFP): East and Southeast Asian economies will outperform the rest of the world in 1997 on the back of robust investments and exports, but their days of "super normal" growth are over, a report said Thursday.

In its latest quarterly economic review, SocGen-Crosby Securities Pte. Ltd. also forecast a selective easing of tight monetary policies in the region which have contributed to a reduction of overheating concerns.

"We believe recent fears about sustainability of high growth prospects for East and Southeast Asia have been vastly over- exaggerated and that, conversely, we expect GDP growth to pick up across the region in 1997..," the report said.

SocGen-Crosby, an affiliate of French banking group Societe Generale and Britain's Crosby Securities, forecast gross domestic product growth of 10.5 percent and 11.0 percent for China in 1997 and 1998, respectively.

It predicted 5.4 percent and 5.8 percent growth for Hong Kong in the two years, 7.3 percent and 6.8 percent for Singapore and 7.5 percent and 5.4 percent for Malaysia.

The report foresaw 7.6 percent and 7.8 percent growth for Thailand over the same period, 8.1 percent and 8.3 percent for Indonesia, and 5.6 percent and 5.8 percent for the Philippines.

The securities house said the region would outperform other parts of the world economy, but added: "The days of super normal growth are over -- especially for Southeast Asia -- these regional economies will generally grow at between seven percent and eight percent per annum."

The 7-to-8 growth, however, was "entirely satisfactory" because continued double-digit growth would lead to inflationary pressures especially as labor markets tighten, it said.

Asia's economic growth slowed in 1996, with exports considerably lower in almost every case, leading some analysts to question whether the regional economic miracle was over.

The cyclical decline was partly due to an electronics slump. SocGen-Crosby said export momentum was poised to pick up, with the inventory correction having ended and the world economic environment improving, while investments still remain at "very high levels" of up to 40 percent of GDP.

"The investment surge over the last few years, in terms of very high approvals and applications numbers, is now being translated into actual construction and investment growth in the real economy..," the report said.

Investments in infrastructure programs are picking up and "these will have important effects for potential GDP growth."

SocGen-Crosby argued that the appreciation of the U.S. dollar against the yen over the past 18 months had reached a peak and would soon be reversed, boosting Asian export competitiveness. It forecast that the dollar would decline to the 102-to-108 yen level in 12 months.

Inflationary pressures throughout the region were lower, a result of tight monetary policies, but continued high investment implied that "policy would be directed at preventing excess consumption pressures," the report said.

"This will mean that tight monetary policies will only be selectively eased," it said.

SocGen-Crosby said East and Southeast Asia were in a period of adjustment as factors responsible for previous years of very high growth change, posing the challenge of promoting high value-added sectors.

"Like in any transition period, there are difficulties as old sectors decline faster than new sectors develop," the investment house said.

It cited the example of Thailand, where new capital-intensive sectors are prospering amid a "precipitous decline" in the export performance of more labor-intensive industries.

The report also said over-supply was becoming evident in a number of sectors such as property and retail in Thailand, Malaysia, Indonesia and to some extent Singapore, while Malaysia is also faced with over-capacity in manufacturing.