Governments across Asia are making moves to soften the economic impact of September's terrorist attacks and of the American-led anti-terrorism campaign. Analysts say the region's economic woes, which were already evident, are deepening.
Uncertainty over the American-led military campaign against terrorism and concerns about the U.S. economy have created an air of gloom in Asia, where economic figures were grim well before the terrorist attacks last month.
Now, the region's economic picture is getting darker. In a report released Wednesday, the United Nations says the developing economies of East Asia will be among the most seriously harmed by the shock waves caused by the terrorist attacks. The United Nations cut its annual gross-domestic-product estimate for the region to 1.7 percent from more than 4 percent. It says the world economy will grow by just 1.4 percent.
Economic reports from individual nations underscore this view. Singapore said Wednesday its economy contracted a devastating 5.6 percent in the third quarter of the year. Indonesia and the Philippines recently slashed their growth and export targets for next year. South Korea has shaved more than one percentage point off of its 2001 growth forecast and says that its trade surplus in September is down by more than half from the year before.
Hugh Young is a Singapore-based fund manager for Aberdeen Asset Management. He forecasts a full-blown recession for Asia until mid 2002, partly because of the terrorist attacks. "It is another layer of deep uncertainty," he said. "We have not only to contend with an economic outlook internationally that is cloudy, but also major question marks on the political outlook which affects directly many of Asia's economies with specific heightened risk in certain areas, such as Indonesia." Many countries in Asia are adopting stimulus packages to help cushion the effects of the downturn. Singapore's plan will include steps to help companies lower costs and retain workers. South Korea and Japan are considering supplementary budgets to stem the economic slide.
Hong Kong Chief Executive Tung Chee-Hwa unveiled Wednesday a $2 billion plan to boost confidence in the Chinese territory's troubled economy. "We are facing a very serious economic downturn and we have announced a number of measures," he said. "One of them is creating over 30,000 new jobs, as soon as possible, within a very short time."
But economists caution the domestic measures will not fully compensate. Hugh Young of Aberdeen Asset Management says that an Asian recovery is impossible without a pickup in exports. He notes the region's exports have been dragging for months. "In many ways, the events of September have accelerated and deepened the situation that was already in place," said Hugh Young. "Asian economies have been slowing for the last year or so, reflecting the downturn for the U.S. market in electronic goods in particular. Many countries in Asia are big producers of electronic goods for the United States, Europe and Japan."
A report by investment bank ING Barings predicts economies with strong consumer bases, such as Taiwan and Singapore, could be among the first to recover. But it also warns that a turnaround in the U.S. economy, forecast for the first half of next year, is critical.
Tim Condon is chief economist for ING Barings in Hong Kong. "The big overhang on the economies in the region is the fear and uncertainty about where the U.S. economy is heading," he said. "The economies in Asia are fundamentally healthy, many experienced crises in 1997-1998. Economic excesses have largely been rung out of the Asian economies. However, investors in Asia are fearing for the health of their economies because they know that health to a large extent depends on the vigor of the U.S. economy's growth."
One exception to the region's woes is China. A survey conducted by business consultancy AT Kearney shows business investors remain upbeat about China, with 15 percent of executives reporting improved perceptions of the country. Economists predict China will maintain high levels of growth next year as it integrates further with the world economy and formally enters the World Trade Organization.