Macroeconomic Outlook

National Economic Recovery Plan
Chapter 2


Asia Pacific Economic Outlook

The current financial turmoil in the Asia-Pacific region, which started in the second half of 1997, will result in a worsening of economic prospects in 1998 for the region. In the International Monetary Fund's (IMF) assessment released in May 1998, the earlier 1998 forecast for Japan, ASEAN countries, South Korea and China were adjusted sharply downwards.

The growing economic problems facing Japan, including the weakening of the yen against other currencies, the crisis in the banking sector, and the waning confidence among industry leaders, is a particular cause of concern for the Asia-Pacific economies. The packages of Japanese stimulus measures fell short of expectations and have so far remained ineffectual in stimulating the economy headed for a recession. Japanís faltering economy poses the danger of undercutting efforts to revive battered economies elsewhere in the region. Japan is the biggest export market for many Asian countries as well as their largest source of capital, both through bank loans and direct investment. The fall in the yen raises the spectre of another round of depreciations in the regional currencies and setting off a deeper and more prolonged regional crisis.

In the light of current assessment, the December outlook could still be considered favourable, especially for Indonesia and South Korea, which were earlier expected to register positive growth. The economic projections for 1998 were revised downwards for many countries. Singaporeís growth rate was reduced to 3.2 per cent, while Philippines will slow down to 1.8 per cent. The growth rates for Thailand (- 3.1 per cent), Indonesia (- 8.5 per cent) and South Korea (- 0.8 per cent) were reduced drastically downwards.

  • Weak Prospects in ASEAN-4

Economic activities in the ASEAN-4 countries are expected to record a negative growth, i.e. - 2.7 per cent in 1998. The short- and medium-term prospects for the region are still unclear in the wake of uncertainties in the currency and stock markets. Domestic demand is adversely affected by monetary and fiscal tightening, rising unemployment, and low business confidence. The depressed stock and property markets generate negative wealth effect, prompting consumers to reduce their spending in view of the uncertainties about future earnings. Interest rates have risen because of increasing risk premium to compensate for uncertainty, and this will dampen consumption and domestic investment.

Households will face rising inflation that results in falling real wages. In view of the anticipated lower corporate earnings and personal income, the amount of tax revenue collected by the government will be adversely affected and government spending very much constrained. The prospects for the region would become clearer after their currencies and stock markets stabilise.




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