SOUTHEAST ASIA TO OUTPACE GLOBAL ECONOMIC ACTIVITY.

The decline in export sales to developed nations has dampened prospects for economic expansion in Southeast Asia over the next 18 months, yet modest but steady expansion of the region's economies should allow regional growth to outpace most of the rest of the world through next year.

According to a recent report released by the Asian Development Bank (ADB), Southeast Asia will experience one of the world's healthiest regional economic recoveries in 2001 and 2002. Regional economic growth is expected to reach four percent this year, and 4.8 percent in 2002.

GLOOMY PROSPECTS FOR EXPORT MARKETS According to the ADB, the global economy will expand 3.5 percent in 2001 and 4.0 percent in 2002. Southeast Asia will be hard put to expand its export base due to the fact that Japanese consumption will probably be stagnant well into next year. Japan continues to be battered by slack foreign demand for its products, and the ADB anticipates that economic expansion there will be in the range of one percent in 2001 and two percent in 2002.

Southeast Asia's exports to North America and Europe are expected to be weak over the next year and this will limit the region's export expansion. However, it looks now as though the negative impact of the global economic slowdown will have a short-term and moderate influence on Southeast Asia. In its report titled Asian Development Outlook 2001 Highlights, the ADB projects that the world economy will experience a relatively shallow and short-term slowdown in 2001 before returning to modest growth in 2002.

The report states that: "Despite strong raw materials demand in several of Asia's leading industrial nations, inflation generally remained subdued in 2000. Average inflation was steady at its lowest rate in several decades before rising modestly in the second half of 2000 in response to a run-up in world oil prices. Among developing countries of the region, inflation was also generally moderate."

MODERATE GROWTH ON THE HORIZON Modest inflation and interest rates will bolster consumer confidence, although those factors will be offset by concerns over possible job layoffs in the industrial sector. Household consumption in Southeast Asia, with the exception of Indonesia, will increase moderately over the next two years. In Indonesia, political strife has seriously undermined consumer confidence and this is compounded by relatively high unemployment.

JAPAN COULD UNDERMINE REGIONAL RECOVERY A senior International Monetary Fund (IMF) official recently warned that the structural reforms demanded by Prime Minister Junichiro Koizumi of Japan could undermine long-term regional efforts to recover from the economic crisis of 1997 and 1998. Stanley Fischer, the second-highest official at the fund, said Mr. Koizumi's proposals for cutting public works and shutting down financially weak banks and companies might deal with Japan's problems in the short run, but they risk adding to the region's economic problems.

With most Asian nations concerned about the possibility of a new economic slump driven by declining stock markets and faltering exports, Mr. Fischer suggested: "the role of the Japanese economy in this region should not be underestimated. The Japanese should be out there running a more expansionary policy." Such a policy would soften the impact of the cutbacks in public spending and credit that are the cornerstone of Mr. Koizumi's program.

A report recently released by Japan's Ministry of Economy, Trade, and Industry is pessimistic about the short-term economic prospects for Japan and other parts of Asia. The latest quarterly survey released by the ministry points out that all sectors of the economy anticipate an economic slowdown. Production is on the decline and capital investment has slowed in anticipation of weak demand for intermediate and finished goods. In addition, personal consumption is depressed and there is no sign of a recovery at this point.

When the ADB initiated its quarterly reports on the regional economies in March of 2001, the first results indicated that Asian economic activity was weakening, with some nations experiencing stagnation. The June report was more pessimistic, showing that six Asian economies were in recession.

The quarterly survey also examined conditions of 50 businesses sectors with a total of 800 companies participating. The number of business sectors enjoying good performances or expecting to do so declined from 34 in March to 28 in June, while those describing conditions as sluggish rose from six to ten. Those saying performance was neither good nor bad rose from nine to 11.

Performance turned from good to poor for mobile phone and parts manufacturers, with waste disposal being one of the few sectors to see improvement. Demand turned from brisk to flat for environment-related firms, medical device makers, and distributors, as well as publicity and temporary staffing agencies. Meanwhile, demand went from flat to poor for electronics manufacturers, chip makers, metal recycling businesses, and pharmaceutical companies, the survey pointed out.

SOURCE: Asian Development Outlook 2001 Highlights, Asian Development Bank, (12 July 2001); Internet<http://www.adb.org>.