Asia to see moderate growth
SINGAPORE: Asian growth will moderate in 2005 from last year’s strong clip as export momentum wanes, but it will remain solid and increasingly supported by the emergence of the Asian consumer, regional polls by Reuters show.
By the end of the year, both China and Malaysia are expected to have revalued their currency pegs and many other Asian currencies are expected to strengthen, the polls on 12 economies in Asia-Pacific found.
The devastating tsunami which hit Asia on Dec. 26 and killed nearly 300,000 people is not expected to have a lasting economic impact. Aid and investment in rebuilding was seen offsetting the impact of the disaster on economies such as Indonesia, Thailand and India. Growth forecasts for 2005 were mostly upgraded from a poll in November and, of the 12 economies, only South Korea and New Zealand expect a growth rate below their five-year average.
“Provided China achieves a soft landing and oil prices do not rise anew, we are optimistic that Asia ex-Japan will enter a new paradigm in 2005, emerging decisively from the shadow of the Asian crisis,” Lehman Brothers regional economists Rob Subbaraman and Wenzhong Fan said in a report.
“... we believe that the region is starting to thrive from stronger economic fundamentals, and other positive long-term structural forces, including a growing middle class, rapid urbanisation, a rising share of the population that is of working age, and a younger generation that is more willing to borrow and spend,” they said.
2004’s worries persist: Despite the worries about a Chinese slowdown, record oil prices and talk of a slowdown in global demand for technology, many Asian economies posted their best growth in 2004 since the tech bubble burst in 2000.
China led the way followed by Singapore and Hong Kong — two economies that suffered heavily from the SARS outbreak in 2003. Still, the region fretted about its prospects.
Further, 2004’s worries look to have been carried over to this year despite Asia’s economic outlook remaining mostly favourable. Running against the regional trend of moderating growth, Indonesia’s economy is expected to accelerate in 2005 and grow by more than 5 percent. That would be its fastest rate since the Asian financial crisis of 1997/98.
With doubts about the export outlook, especially for the electronic goods so important to Asia, the key to growth this year would be local consumers, analysts said. In Hong Kong, analysts expect pay rises and a recovering property market to underpin consumer spending, with the end of six years of deflation also helping.
A mediocre monsoon has softened Indian growth in the fiscal year ending Mar. 31, but strong consumer spending and investment means that not too much momentum has been lost. South Korea’s economic gloom shows little sign of lifting.
In a poll last May, 2005 growth was forecast at 5.5 percent. That forecast has been progressively lowered by about half a percentage point in polls in July, November and this month. “Consumption will continue to remain weak due to a depressed job market, while there will be cooling momentum in exports due to a strengthening won, as well as the prospect of a less profitable year on the corporate front,” said Oh Sang-hoon, a senior economist at SK Securities.
Currency change: 2005 could be the year Asia relaxes its grip on currencies as it tries to foster domestic consumption, the polls found.
Currencies such as the South Korean won, Taiwan dollar and Singapore dollar rallied into the end of 2004. They are expected to extend their gains this year, with other currencies such as the Thai baht also expected to post strong gains.
Perhaps most importantly, economists see a change in China. The median forecast was for no change in the long-standing peg of 8.28 to the dollar in the first half of the year, with the yuan appreciating to 7.88 by the end of 2005.
“The government is reluctant to change, but we still need to watch how big external pressure from the United States, Europe and Japan will be on China,” said Xiao Minjie, an economist at the Daiwa Institute of Research in Shanghai. An indication of that pressure could come next week, when Chinese officials meet with their counterparts from the Group of Seven leading industrial nations.
Malaysia is also expected to revalue its ringgit peg to 3.6 per dollar from 3.8 per dollar by the end of the yea. “It will be largely because of weakness of the dollar. A strengthening of the ringgit will have a positive impact on domestic consumption,” said Wong Chee Seng, economist at Singapore’s DBS Bank. —Reuters