'Just a matter of time' for Asian economies

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ECONOMIC OUTLOOK & GLOBAL RISK

'Just a matter of time' for Asian economies

Thai exports will take hit as US falls
Thursday March 20, 2008
PARISTA YUTHAMANOP

The Thai economy will suffer from weaker export growth and increasing volatility in capital flows as the US economic downturn will drag down global trade, say economists. Manu Bhaskaran, a partner and director of Singapore-based Centennial Asia Advisors, said the US was expected to suffer from weak growth over the next 18 to 24 months, resulting in a slowdown in global trade.

He said this week's rate cut by the Federal Reserve had ''come too late'', while the fiscal stimulus programme was unlikely to prevent a sharp downturn in the US housing market from spilling into the overall economy.''The problem in the US is spreading. It is just a matter of time before Asian economies will see their growth forecasts revised downward,'' he said.

''It takes nine to 12 months for monetary policy to take effects. The Fed only moved seriously in January. And the US will have a fiscal boost in July and August, leading to a temporary economic boost in the third quarter, but it won't prevent the the credit market from deteriorating.''

The Fed on Tuesday cut its Fed Funds rate by 0.75 percentage points to 2.25%, and announced a range of measures to provide emergency liquidity to the credit markets shaken by the collapse of the investment bank Bear Stearns.

Mr Bhaskaran, speaking at a conference held yesterday by Kasikorn Securities, said the dollar was expected to keep depreciating over the next three years, helping narrow the US current account deficit.

''Risk aversion is rising and it has crystallised into a big problem. The dollar could move up against the euro over the next few months. But it is going to go down fundamentally in the long term,'' he said.

''This is a decisive shift in the balance of power away from the US. There will be low US growth and the return on the dollar will be lower for a period of time.''

Meanwhile Japan would prove to be a drag on the world economy, considering recent economic trends. Growth in Europe has also shown signs of slowing.

Mr Bhaskaran said that interest rate cuts in the US could help the mortgage market, which has been shaken since last year due to the sub-prime mortgage crisis.

Meanwhile, liquidity from sovereign wealth funds from the Middle East and Asia could help support the US financial market and also recapitalise US banks.

Mr Bhaskaran said it was inevitable that a slowing US economy would hurt Asia.

He cited a report by the Asian Development Bank and the Monetary Authority of Singapore saying that two-thirds of Asian exports ultimately hinged on the US consumers.

But Asian countries have shown increased resiliency to withstand global shocks, thanks to stronger banking systems, high farm income and low unemployment, Mr Bhaskaran said.

''The end of political uncertainties in Thailand has also helped business and consumer confidence to recover. This, along with pent-up demand, has given some support to the Thai economy,'' he said.

But James McCormack, senior director and head of Asia sovereign ratings for Fitch Ratings, said political risk remained a concern for investors.

He noted while Thailand's exports were increasingly diversified, half of the country's exports to the US were computer parts that relied on US consumer demand.

''But I am optimistic for 2008 that the Thai economy can get domestic consumption back. We have started to see a pickup from pent-up demand in consumption and investment,'' he said.

Mr McCormack noted, however, that house prices were also in decline for the first time since the 1997-98 crisis, in line with slower construction growth and land transactions.

He said that Thailand should move forward to increase infrastructure investment to avoid falling behind other countries in the region, particularly Malaysia and Vietnam.

Thailand's overall fiscal stability remained sound, he said, even with higher deficit spending.

Mr McCormack noted that tax collections, as a percentage of GDP, had risen to 17% last year from 14% in 2000.

''The fiscal risk is still manageable, even with the tax cuts and public spending deficit. The public finances are in a good position,'' he said.

bangkokpost.net

[bkkandrew]

He cited a report by the Asian Development Bank and the Monetary Authority of Singapore saying that two-thirds of Asian exports ultimately hinged on the US consumers.

...And there in lies the problem. The lifeboat lashed to the sinking ship is doomed to Davy Jones' Locker also...

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tough times when your customers are broke ..............