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Analysis: Asia to Present Strong Economic Rebound Before Yearend
A strong rebound in Asian economic growth will deliver a pleasant surprise to financial markets before the year's end, senior economists here predicted Wednesday.
"Although lagging indicators such as exports and industrial production in the second quarter paint a terribly depressing picture of Asian economies, Lead indicators for some economies are looking more upbeat, especially China, Singapore and Korea," said Manu Bhaskaran, chief economist for SG securities.
The SG's confidence stems from a turnaround in the U.S. where consumer spending has confounded the pessimists. "We are forecasting that the U.S. corporate profits will stabilize in the third quarter before surging strongly in the fourth quarter," Bhaskaran said.
Once this happens, orders for capital goods are likely to rise as well, translating into rising export orders for Asian producers, " the economist stressed.
In its latest quarterly economic review entitled "Looking beyond the current gloom", SG, the corporate and investment banking arm of the Societe Generale Group, outlined the key changes that will mark the Asian economic landscape over the coming months.
According to Bhaskaran, another key change to watch out for is an intensification of bottom-up restructuring by companies responding to changes in the competitive environment by shifting production to cheaper locations, selling off low-yielding assets and cutting bloated workforces.
In China, remarkable economic growth will carry into 2002, fuelled by strong domestic demand and WTO-induced foreign direct investment, the SG economist said.
Silvia Liu, an analyst from the Hong Kong-based Merrill Lynch, China's exports of foreign-invested enterprises in June saw positive growth of 4.8 percent, and for the first half of 2001, China maintained positive export growth of 8.8 percent, still comparing favorably to contractions of 5 percent in Korea.
Liu believed the Chinese industrial production remains steady, driven by domestic demand. In fact, 88 percent of industrial growth in June was attributable to domestic demand. Going forward, the continuity of an expansionary fiscal policy, together with a moderate monetary policy, should be the key to sustain domestic demand.
However, Dong Tao, senior regional economist of Credit Suisse First Boston, cautioned that the recovery is likely to happen in early 2002. "We foresee a sharp slowdown in 2001 GDP growth for Asia though many economies in the region are trying to boost domestic demand via enhanced public expenditure or a stimulus to private consumption," Tao said.
Tao believed that with the upturn of the U.S. electronics demand, Asian investment demand should recover, boosting intra- Asia exports and ensuring a strong economic rebound throughout Asia in 2002.
Tao pointed out the growth momentum in China despite a slower export performance. "Rising private consumption, robust foreign direct investment flows and rebounding fixed asset investment should offset the downside for exports," he said.
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