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.