Goldman Cuts Asian Growth Forecasts On Fears Of US Recession

Source : The Straits Times, Jan 15, 2008

Bank is predicting a slowdown in America that may hit US-bound shipments from Asia

GOLDMAN Sachs reduced its growth forecasts for Asia on concerns that an expected recession in the United States will erode demand for the region's exports.

Asia, excluding Japan, will expand by 8.3 per cent this year, down from an earlier estimate of 8.6 per cent, Hong Kong-based economist Michael Buchanan said in a report yesterday. The investment bank last week cut its forecasts for the US and Japan.

Goldman, which last year had said Asian growth was decoupling from the US, is now forecasting a recession in the world's largest economy that may hit shipments to the region's biggest export destination.

Singapore's electronic exports have dropped each month since last February, mired in the worst slump in five years.

South Korea and Taiwan have also warned of easing demand for semiconductors, mobile phones and computers, which signals weaker growth for this year.

'There could be a 'tipping point' at which the US slowdown has a more significant impact on Asia than before,' Mr Buchanan wrote.

'The further deterioration in the US economy comes as Japan is also teetering on the edge of recession.'

Morgan Stanley and Merrill Lynch are also forecasting that the US will slip into a recession this year for the first time since 2001, amid a fallout from the US sub-prime mortgage crisis.

Goldman is predicting a 50 per cent chance of a recession in Japan, the world's second-largest economy. It lowered its growth forecasts for all 10 Asian economies that it covered in the report yesterday, including for China and India.

Asia's growth next year will be 8.5 per cent, compared with a prior prediction of 8.6 per cent, Goldman said.

'We'll probably see suppressed US import demand because of an anticipated slowdown in consumer spending,' said Mr Thomas Lam, an economist at United Overseas Bank.

'The contribution from export-led growth for Asia from the US will be impacted. Larger Asian economies will not be spared.'

East Asia's exports are forecast to climb by 15.2 per cent this year, after jumping by 17.8 per cent last year, the World Bank said in its Global Economic Prospects 2008 report released last week.

The region is almost twice as reliant on exports as the rest of the world, with 60 per cent of shipments abroad ultimately destined for the US, Europe and Japan.

Still, the US may need to go through a larger-than-expected slowdown before Asia's growth will reach a 'tipping point', Mr Buchanan said.

'There may still be a growth rate at which Asia caves in and consumption and capital expenditure slow more appreciably, but it may now take more than just a very mild technical US recession,' he said.

China will now expand 10 per cent this year, down from an earlier forecast of 10.3 per cent, Goldman predicted. The US buys about 19 per cent of China's exports.

In Singapore, where consumer price gains are at the highest in a quarter of a century, Goldman expects inflation to outweigh growth concerns.