Source : The Business Times, December 12, 2008
Hong Kong and Taiwan also face a rocky road ahead
EAST Asia's newly industrialised economies (NIEs), including Singapore, will be among the hardest hit by the economic storm that is sweeping across the globe, the Asian Development Bank (ADB) warned in a report published yesterday. It called prospects for Singapore and others 'bleak'.
At the same time, the ADB urged all Asian governments to batten down against the growing storm by taking individual and collective actions in the face of what could be an even harsher economic environment than the current one.
'The external economic environment for developing Asia is likely to worsen as major industrial economies contract further, global financial conditions remain constricted and world trade growth slows sharply,' the ADB said in its latest regional Economic Update for East Asia.
Predicting that growth in the developing economies of the region as a whole (excluding Japan) will fall from an estimated 6.9 per cent this year to 5.8 per cent in 2009, the ADB said that Asean's growth would slow from 4.8 per cent to 3.5 per cent over the same period while in the four NIEs - Singapore, Hong Kong, Taiwan and South Korea - growth would plunge from 3.5 per cent to just 2.4 per cent.
Singapore will be worst hit in absolute terms, with growth slowing from a projected 2.3 per cent this year to just 1.2 per cent in 2009, said the ADB, echoing a forecast also by the World Bank this week that Singapore's GDP growth would slump to 1.2 per cent next year.
Taiwan will be next hardest hit among the NIEs with growth there predicted at just 1.7 per cent next year, while Hong Kong's is seen at 2.1 per cent and South Korea at 3 per cent, the ADB said.
These four economies in particular are being hit not only by falling exports but also by slowing domestic demand and contracting domestic investment, the ADB said. 'As highly open economies, the NIEs are extremely sensitive to changes in the global economic environment.'
The outlook for Singapore, 'which is already in recession, is bleak', the ADB warned while adding that 'the plunge in stock prices (there) may further slow private consumption and investment'.
Meanwhile, 'aggregate GDP growth in Asean is estimated to weaken to 3.5 per cent in 2009 from an estimated expansion of 4.8 per cent, which was kept relatively high only by a buoyant first half'. However, 'domestic demand, helped by policy measures is likely to mitigate some of the impact of the weakening external environment' for Asean, the ADB said.
The bank projected China's GDP growth for 2009 at 8.2 per cent - higher than the World Bank's prediction this week that output would expand at 7.5 per cent next year. But the ADB's forecast of a 0.2 per cent contraction in Japan's GDP for 2009 was more severe than that of the World Bank.
A major threat for the region's more open economies, including Singapore, the ADB noted, is that 'world trade growth is slowing sharply as demand from major industrial countries slumps, reducing export production in emerging market economies.
'A synchronised downturn in advanced economies is adding to pressure on world trade (and) the World Bank estimates that trade volume will contract by 2.5 per cent in 2009 from an estimated 5.8 per cent expansion this year. Global manufacturing output has slumped.'
External capital has started flowing out of East Asia now, turning around from strong inflows in the first half of 2008, the ADB pointed out. Singapore saw its capital inflows, in the form of foreign direct investment and other flows, 'reversed' to outflows in the third quarter of this year.
The report warned that 'if international financial conditions worsen, external finance could dry up, placing several of the region's financial systems in jeopardy and causing domestic credit conditions to deteriorate'.
Authorities in East Asia should do all they can to bolster the strength of their financial systems against such an eventuality and to ensure adequate supplies of financial liquidity, the ADB says.
It calls upon regional governments to support a strengthening and multilateralisation of the network of currency swaps known as the Chiang Mai Initiative so that this can provide emergency injections of liquidity to East Asian economies that may run into balance of payments problems in the current crisis.
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