Slower Asean Growth Seen Next Year

Source : The Business Times, September 12, 2007

(SINGAPORE) Investment bank Morgan Stanley has cut its forecasts for next year's economic growth in Singapore and the rest of the Asean region, saying that what were once 'rising risks' from the US housing slowdown and sub-prime mortgages crisis have 'become reality'.

The US bank does say, though, that the effects of the downturn will not be as bad as in some previous crises.

Morgan Stanley's US economists now expect 'a deeper and longer housing recession' to squeeze consumer and business spending, meaning that US growth is likely to average just 2 per cent over the next six quarters - 0.6 of a point below estimates made just a month ago.

'We believe this will weigh on external demand and business investment growth for the Asean region,' the bank says in an Asean Economics report. But Asean growth will slow less than proportionately as the region is headed for a 'soft decoupling' from the US, it says.

The US share in Asean exports has fallen, and domestic demand has picked up of late, it notes.

Still, it has cut Asean 2008 GDP growth to 5.6 per cent, from an earlier estimate of 5.9 per cent, and from a projected 6 per cent pace for 2007.

Going by trade linkages, the impact of a US slowdown will be most severe for Singapore, it says, followed by Malaysia, and least severe for Indonesia and the Philippines.

The US bank has cut its 2008 GDP growth forecasts for Singapore and Indonesia by 0.4 of a point each to 6.1 and 5.9 per cent. Its estimate of Singapore's growth this year is 7.7 per cent, within the official 7-8 per cent band.

For Malaysia, the 2008 growth forecast has been lowered by 0.3 of a point to 5.5 per cent. The estimates for the Philippines and Thailand have been reduced by 0.2 of a point each to 5.6 and 4.8 per cent respectively.

'We believe that if the US economy goes through a soft landing, the Asean region will see a soft decoupling (ie, GDP growth decelerates but in less than proportionate manner).

'The key risk to this outlook is the potential significant turbulence in the US financial markets transmitting to Asean financial markets.'