Most Asian economies took a beating in 2001, but stock markets in the region have rallied in recent weeks, on hopes that growth will return next year. But those hopes may be premature.
Business owners, workers and investors in Asia are keeping a close eye on the United States. Financial analysts say that if the world's biggest economy does not recover by June, Asia will suffer through another tough year.
And this year has been tough enough. Singapore, Hong Kong, Taiwan, Malaysia and Japan are in recession. South Korea and Australia are seeing some growth, but it has been weakened by slumping U.S. demand for their goods. And while authorities in China insist the country will see seven-percent economic growth next year, the government is planning new measures to stimulate the economy to make sure it meets that target.
The collapse in the global high-technology bubble, a surplus of inventory in the United States and weak stock markets already had slowed economic growth in Asia earlier this year. Then the September 11 attacks on the United States sent tourism into a tailspin, halted most new investment in the region and slashed Asian exports.
The hard times this year felt especially bitter to many Asian countries because they had just recovered from the worst of the region's economic crisis in 1997 and 1998.
Despite this year's grim economic statistics, most Asian stock markets rallied in the past the few months. Robert Conlon, chief investment officer at Investec Asset Management in Hong Kong, says shares in technology companies in particular have risen. "We've already seen quite an upswing in Asian markets as investors begin to anticipate things getting better," he says.
If the U.S. economy does recover from its recession by the middle of next year, Asia could pick up quickly. Mr. Conlon says that is because Asia's economies depend heavily on exports of manufactured goods to the United States. "We're hoping to see an economic recovery probably starting something like in the second quarter of next year in the United States, and therefore, Asia, because of its trade size, would see an almost immediate impact," he says.
Even so, it could take months for Asia's unemployment levels to come down and for retail sales to rise. Economists say that because this year has been so bad, it will take significant gains next year to return to the economic growth levels of 1999 and 2000.
In Hong Kong, for instance, the middle class has been hit hard by job losses, and the number of bankruptcy cases is rising. Yu Pang Chun, chairman of the Hong Kong Retail Management Association and a director of a department store chain, says that means sales of consumer goods are going to stay weak for some time. "With the economy still like it is now, with deflation, we've had 35 consecutive months of deflation without any improvement in that factor, we probably won't seen any improvement in the retail industry at least for a couple more years. In fact, we envision next year will be even worse than this year, in terms of total retail sales," he says. And, there is no guarantee that there will be a recovery in the United States, or that it will be strong enough to pull up the rest of the world's economies.
Paul Chanin, a regional stock strategist for Salomon Smith Barney in Hong Kong, says that if the U.S. recovery doesn't come in the first half of 2002, or if it is not accompanied by an increase in business investment, then Asia's stock markets will suffer. "The worst-case scenario would be the expectations which have been priced into technology doesn't come through, that would give a severe problem, I would suggest, to the tech-heavy north Asian markets, which have been the ones that have been rallying the most," he says.
If the U.S. recovery starts by mid-year, the first part of 2002 still will be rough in Asia. Hong Kong's financial secretary predicts the territory will stay in recession for the next several months, while officials in Singapore and Taiwan have given similar warnings. And the International Monetary Fund on December 18 forecast that much of Asia will see just 1 percent or 2 percent growth next year.
Part of VOA's Year End Series for 2001