Economists in Asia say the economies there face a deteriorating outlook in the wake of the terrorist attacks on the United States. Several economies already weakened by a slowdown in global economic growth are now threatened with prolonged recessions. Many Asian governments face tough fiscal decisions as they seek measures to limit the damage.
Most economists in Asia are predicting grim economic results for most of the region this year, with Southeast Asia being the hardest hit.
Economist Graham Parry is with Lehman Brothers in Tokyo. "Just running through the numbers, we see growth in Singapore of around minus one percent. Malaysia, we see no growth this year," Mr. Parry says. "Then, in Thailand, we have one percent growth and the Philippines, we have two percent growth this year. Finally, in Indonesia, we have growth of two and half percent this year."
Exports make up more than half of the GDP of many Asian economies. Major electronic exporters like Singapore, Malaysia, and Taiwan were especially vulnerable to a recession after weathering shocks earlier in the year including a global high-tech slump and weakening American consumer demand.
Economists say the September 11 attacks in New York and Washington will accelerate their downward slide as U.S. consumer demand collapses further. The most cheerful outlook for Taiwan this year is a growth of negative one percent.
If some countries are not in a recession now, Mr. Parry predicts they will be soon. "Countries like the Philippines and Thailand had managed to avoid recessions in the first half of the year," he says, "despite being exposed to the electronic sector. Those two countries have large agricultural sectors, which have performed quite well. But with the U.S. economy likely to perform worse, that will add to the depth of the slowdown so that even those economies will now fall into recessions."
Economist Chi Lo at Standard Chartered Bank in Hong Kong says Hong Kong, too, may soon slip into a recession. He notes that the territory's exports fell more than nine percent in August the worst fall in two years. "Without the attacks, the risk of a U.S. recession was not high," he says. "But now it is more or less a done deal. The United States being the biggest market for Hong Kong's exports, Hong Kong gets a big hit from the dramatic drop in U.S. demand.
The outlook in Northeast Asia is better. China's economy is expected to show some resilience growing seven percent on the back of continuing demand at home. South Korea is also expected to post positive growth thanks in part to the extensive financial overhaul the country was forced to undertake after the 1997 Asian financial crisis.
Tim Condon is chief economist at ING Barings brokerage house in Hong Kong. "I think Korea is one of the most robust economies in terms of its ability to deal with serious adverse external shock. Some of the other economies in the region are a little bit less flexible," Mr. Condon says.
But economists say prospects for Japan the world's second largest economy continues to look poor. Despite the fact it does not rely heavily on exports for growth, they note that Japan's lingering structural weakness in its corporate, financial and government sectors make the economy extremely vulnerable to global downturns.
To stimulate growth, Tokyo may try to boost government spending. It is something the Japanese have done many times in the past decade with little or no success.
Nevertheless, it is an idea that is catching on with many Asian policymakers. This week, South Korea, Singapore and Malaysia have all announced plans to introduce stimulus packages.
But some governments, saddled with large public debt burdens after bailing out insolvent banks during the Asian financial crisis, will probably be unable to use this measure without risking their sovereign credit rating. The ratings are crucial in determining how fiscally stable a country is for international investments and loans.
On Wednesday, credit ratings agency Standard and Poors warned several governments in Asia, including Japan, that they risk being downgraded if their fiscal plans appear to be too far-reaching.