Magazine article Business Asia

Risks in the Wind, but Outlook Strong

Magazine article Business Asia

Risks in the Wind, but Outlook Strong

Article excerpt

Higher US interest rates are a worry, but PAUL BRENNAN(*) suggests Asia's strong rebound will continue

Helped by a recovery in capital inflows, robust US demand and the production rebound in information technology, the recovery in Asia continued to develop and broaden during 1999.

Underlining the rebound, the region recorded economic growth of 6.3 per cent.

At the same time, deflation fears receded. South Korea, China, Taiwan, Singapore and Malaysia were the brightest stars in 1999. Only in Indonesia was the economy flat, although the recovery was weak in Hong Kong and the Philippines.

Another solid year is expected in 2000, with economic growth accelerating slightly to 6.7 per cent.

Only a moderate pick-up in inflation is projected to around 2.6 per cent as spare capacity in Asia is gradually eroded. Inflation could become more of a threat next year, especially in Korea.

Australia is benefiting from the stronger-than-expected recovery in Asia.

Our exports to Asia have risen 27 per cent in the past 12 months, with particularly rapid growth to Singapore and China.

However, a number of risks and opportunities are worth highlighting. Our Asian economic team, writing in the May edition of "Asian Outlook and Strategy", commented:

"The global environment facing Asia has become more choppy, with the prospect of higher US interest rates and more equity market volatility clouding the picture, but faster global GDP growth brightening it.

"The bad US inflation figures are most worrying, as they indicate a larger risk of a hard landing in the US. Asia, though, has three insulators that should help its economies and assets outperform: better growth prospects for Japan and Europe, strengthening intra-regional trade and more flexible exchange rates.

"The prospect of higher US interest rates, along with a generally faster pace of import recovery than we had earlier expected, means somewhat weaker currencies in Asia. …

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