Asia's Troubles Likely to Spread, Experts Say, Hurting U.S. Trade Balance, Overall Growth

By Matthews, Gordon | American Banker, November 3, 1997 | Go to article overview

Asia's Troubles Likely to Spread, Experts Say, Hurting U.S. Trade Balance, Overall Growth


Matthews, Gordon, American Banker


The economic and financial turmoil in Asia is unlikely to end quickly and may spread, according to several economists.

And for the United States, the situation heralds slower economic growth but not necessarily a recession.

"I think we will be seeing far more moderate growth a year from now, but it's premature to assume a recession might develop," said Philip Braverman, chief economist at DKB Securities USA, the New York brokerage arm of Dai-Ichi Kangyo Bank.

"I think the Asian situation will have a long-term impact on the U.S. economy and financial markets," said Sung Won Sohn, chief economist at Norwest Corp. He also noted that "large banks have meaningful exposure in Asia."

Mr. Sohn equated the Asian currency meltdown to an oil slick. Last week, pressures that had forced devaluations across Southeast Asia reached Hong Kong. Financial markets worldwide plummeted.

"Unfortunately, the slick won't stop at Hong Kong harbor," Mr. Sohn said. "Soon, it could reach the shores of Japan and the rest of the world."

In reaction, Japanese stocks could tumble and the yen sag to a new low, he said. European currencies, already suffering from the belt- tightening required to meet Maastricht Treaty criteria, are likely to weaken against the dollar as efforts are mounted to maintain exports.

Last week, a currency crisis in Brazil caused a major break in financial markets.

"The biggest risk I see is that Japan's economy will be hard hit by the turmoil in Southeast Asia, which accounts for almost 40% of Japan's exports," said Edward Yardeni, chief economist at Deutsche Morgan Grenfell Inc.

He said he doubts Asia will rally as quickly as Mexico did from its 1995 currency crash, noting that many countries are involved in the present crisis.

At the same time, the United States "had the will and the might to help Mexico," Mr. Yardeni noted. …

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