Weaker dollar may boost Asian exports

Weaker dollar may boost Asian exports

SINGAPORE (AFP): The prolonged weakness of the U.S. dollar is making Asia's exports more competitive and drawing more direct foreign investment to the region, British brokerage Crosby Securities said yesterday.

But other analysts say Asian manufacturers, most targeting the U.S. market, could suffer a competitive disadvantage, although the greenback's fall had at least temporarily arrested fears of inflation spreading to the region.

"In general, U.S. dollar weakness benefits Asia's economies strongly through increased currency competitiveness for exports and heightened attractiveness to foreign investors," Crosby said in its latest Asian quarterly economic review.

Crosby's assessment was based on the impact the recent decline in the U.S. dollar would have on the real effective exchange rates (REER) of the region's currencies.

It said studies showed that exports in seven Asian countries responded strongly to changes in REER, a trade-weighted exchange rate index, influenced mainly by short-term U.S. dollar movements.

The studies covered China, Hong Kong, Singapore, Malaysia, Thailand, Indonesia and the Philippines.

Crosby said that the increased competitiveness of Asian currencies combined with accelerating world trade and renewed demand in industrial nations would bolster Asian exports in the 12 months from June this year.

Chan Kok Peng, an economist with British investment house Smith New Court (S) Pte. Ltd., however, believes that the REER was not a "fool-proof" method of gauging Asia's export competitiveness.

Factors

"It all depends on what key economic factors are used against the index. For instance studies have shown that using consumer price index and unit labor costs separately could give different results," Chan said.

But Chan agreed that the U.S. dollar would continue to be weak in the long-run.

"I cannot see how the greenback can strengthen given that the U.S. trade position is still weak while domestic demand is increasing on the back of increasing imports," he said.

The United States and Europe are the two largest export markets for most Southeast Asian economies.

Because these economies manage their currencies against the U.S. dollar their external accounts are directly geared to the greenback's movements, analysts say.

Almost all of Hong Kong and Singapore exports to the United States and Europe comprise manufactured goods against 74 percent for Malaysia and 40 percent for Indonesia.

Crosby said that Southeast Asia was already gaining from the fall in the U.S. dollar, which was drawing more direct investments to the region.

Besides the declining dollar, Asia's other pluses included greater stability of input costs, currency movements and rapid deregulation.

Bruce Rolph, head of research at Salomon Brothers Singapore Pte Ltd., said generalizations about Asia's export competitiveness in relation to the U.S. dollar could be dangerous.

"A weakening U.S. dollar increases the import cost of Asian goods into the U.S., whose exports would be cheaper. As such, regional manufacturers destined for the American market would suffer a competitive disadvantage," he said.