Bad news for S.E. Asia on economic front

By Amit Baruah, The Hindu,
Thursday 12 July 2001

SINGAPORE, JULY 11.It is all about downturns and slowdowns. The news emanating from South-East Asia on the economic front is not good.

Yesterday, the Singapore Government downscaled its GDP growth forecast for 2001 at 0.5 to 1.5 per cent from 3.5 to 5.5 per cent - the second downward revision. Last year, the Singapore Government grew by a robust 9.9 per cent but the authorities here have been warning of an imminent slowdown which is now upon Singapore. Advanced estimates show that Gross Domestic Product (GDP) in the second quarter grew by 0.8 per cent in real terms over the same period last year. On an annualised quarter-by- quarter basis, real GDP declined by 10.1 per cent, an official statement said.

Goods-producing industries are estimated to have contracted by 6.6 per cent. The manufacturing sector declined in the second quarter, due largely to the drop in global demand for electronics, while the construction sector recorded flat growth, it said. Explaining the rationale for revising the GDP growth downwards, the statement referred to the sharp slowdown in major economies. U.S. growth in the first quarter was only 1.2 per cent, as companies run down inventories in the midst of a sharp drop in demand. Second quarter performance is expected to be worse. While there are tentative signs of a recovery, the outlook of the U.S. economy remains uncertain.

More significantly, Singapore's economy is more closely linked to the U.S. technology sector than the general economy. Due to the huge excess capacity built up over the boom years, this sector is weaker and will take longer to recover, the statement added. Mr. David Cohen, director of economic forecasting at Standard & Poors, was quoted by The Straits Times as saying that the current downturn is worse than 1998 and predicted that the Singapore economy would contract by 0.5 per cent this year.

However, the problem is not just with Singapore. Indonesia and the Philippines have also revised their 2001 GDP forecasts downwards. In the case of Indonesia, it is down to 3.25 to 3.75 per cent from 5 per cent, while for the Philippines it now stands at 3.3 to 3.8 per cent. It is not just South-East Asia, but North-East Asia as well. Hong Kong, Taiwan and South Korea, too, have also revised their expected GDP growth rates for 2001 downwards.