Warnings on Asian recessions no surprise, worse expected

Warnings on Asian recessions no surprise, worse expected

SINGAPORE (Reuters): Dire government warnings in Asia this
week about recessions and slowing growth surprised few, unless it
was the policy makers themselves, economists and analysts said
yesterday.

The issue now is when the recovery will come and who will be
at the head of the pack, they said.

Opinion is divided as forecasting in the current economic
climate is fraught with uncertainties, analysts said. But
countries in the most-likely-to-succeed ranks include Hong Kong,
Singapore and Thailand.

Indonesia, with its crumbling banking system, remains the sick
man of Asia and will not see any meaningful economic growth for
the next four to five years, they said.

Earlier this week, Indonesia predicted a massive 13 percent
shrinkage of its economy for 1998, while Malaysia and Singapore
said growth would slow.

Singapore Prime Minister Goh Chok Tong said the possibility of
a recession in 1999 was "fairly high", after Singapore had
slashed its forecast for gross domestic product (GDP) to between
0.5 and 1.5 percent from between 2.5 and 4.5 percent.

Malaysian Deputy Prime Minister Anwar Ibrahim said the
government's growth projection of two to three percent for 1998
needed to be revised.

Stock and foreign exchange markets were dented by the news,
but few economists expressed surprise.

"We had much worse forecasts than the governments of the
countries we were looking at," said one economist with a
securities house. "A lot of them are coming to terms with what is
happening on the ground, acknowledging the situation, rather than
trying to pretend," he said.

A predominant view among economists is that the shape of
Asia's recovery will be a slow and prolonged "U" rather than the
sharp "V" shaped revival experienced by Mexico. No one was
prepared to predict when the bottom would be reached.

"It is completely unrealistic for any government to think that
after one quarter the worst is over. It's only just started,"
said Jim Walker, chief economist with CLSE Global Emerging
Markets.

He said Thailand may be headed to the bottom of the curve,
having been effectively in a recession for 21 months, and could
reach it this year and start to recover by 1999, he said.

Thailand wins kudos for sticking firmly to the terms of an
International Monetary Fund (IMF) support program, said Paul
Schymyck, executive director and regional economist with the
Canadian International Bank Of Commerce.

But he and other analysts said Thailand was not out of the
woods yet as its banking system needed a serious overhaul.
Schymyck projected that the Thai economy would shrink by about
seven percent in 1998 and see zero growth in 1999.

"The main problem in Thailand is that the high level of non
performing loans means the recapitalization for its banking
sector will be very very high," he said.

Several analysts said the better-managed economies of Hong
Kong and Singapore would be faster to recuperate.

Singapore's recovery hinges on a drawdown in the current high
inventories in the global electronics market and the strength of
U.S. demand.

"A saturation in the demand for personal computers" has caused
a chain reaction in the whole industry, putting Singapore at an
immediate disadvantage, said Liew Yin Sze, regional economist
with J.M. Sassoon.

He expects Singapore's GDP to shrink by 0.2 percent in 1998
and one percent in 1999.

Hong Kong is dependent on the strength of the Chinese economy,
which may be dented by the loss of export competitiveness from
the strength of the yuan.

And much will depend on Japan's recovery from recession to
help the crisis-hit countries to export their way out of trouble.
Japan, which takes a significant share of Asian exports, about
US$145 billion in 1997, has already seen its Asian imports
decline by 11 percent for the first five months of this year,
Walker said.

"The real concern is that the U.S. begins to slow as well and
that leaves us the question of whether a reliance on exports is
good or sensible?" he added.

Asian governments had to re-orientate their policies and focus
on cranking up their domestic growth engines rather than relying
on the export sector, he said.