Tue, Jan 15, 2008 page11

• Goldman Sachs reduces Asian economy forecasts

  SOBERING NUMBERS The company said that Taiwan would remain the 'most exposed' to a recession in the US. The outlook for other states wasn't much better

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  Goldman Sachs Group Inc reduced its growth forecasts for Asia on concern an expected recession in the US will erode demand for the region's exports.

  Asia, excluding Japan, will expand 8.3 percent this year, down from an earlier estimate of 8.6 percent, Hong Kong-based economist Michael Buchanan said in a report yesterday.

  The investment bank had last week cut its forecasts for US and Japan.

  Goldman, which last year 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.

  South Korea and Taiwan have already warned easing demand for semiconductors, mobile phones and computers portends weaker growth this year.

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

  "The further deterioration in the US economy comes as Japan is also teetering on the edge of recession," he wrote.

  Morgan Stanley and Merrill Lynch & Co are also forecasting that the US will slip into recession this year for the first time since 2001 amid fallout from the subprime mortgage crisis.

  Goldman is predicting a 50 percent 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 reductions for China and India.

  Asia's growth next year will be 8.5 percent, compared with an earlier prediction of 8.6 percent, Goldman said.

  "We'll probably see suppressed US import demand because of an anticipated slowdown in consumer spending," said Thomas Lam, an economist in Singapore at United Overseas Bank Ltd, the nation's second-largest lender.

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

  East Asia's exports are forecast to climb 15.2 percent this year, after jumping 17.8 percent 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 percent of shipments abroad ultimately destined for the US, Europe and Japan.

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

  South Korea on Jan. 1 lowered its growth forecast for this year, pointing to the likelihood of slowing exports.

  Taiwan is also predicting an easing in overseas shipments this year, which officials said would make its growth target "highly challenging."

  Hynix Semiconductor Inc chief executive officer Kim Jong-kap last month told employees at the world's second-largest maker of memory chips that "a difficult period" was foreseen for the first quarter or the first half.

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

  "The greater acceptance of the decoupling of Asia from the US that has built up over the last year or so may mean the tipping point for Asian households, firms and markets is at a lower, more negative growth rate than normal," he said.

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

  China would expand 10 percent this year from an earlier forecast of 10.3 percent, Goldman predicted.

  The US buys about 19 percent of China's exports.

  "Given the significant contribution to growth from net exports, a meaningful slowdown in global demand triggered by a US recession would surely have a visible impact on China's growth and corporate profitability," said Liang Hong (梁紅), a senior economist at Goldman Sachs in Hong Kong.

  The firm cut India's growth estimate to 7.8 percent from 8 percent, and foresees halved export growth.

  The Reserve Bank of India may cut interest rates twice this year, once in April and again in the second half, Goldman Sachs predicted.

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

  It was "even less confident" of growth in Thailand as political uncertainty hampers policy decisions there.

  Taiwan remains the "most exposed" to a US slowdown, while a greater-than-expected decline in Philippine exports will "take its toll" on that country's economy, Goldman Sachs said.

  "Overall, these forecast reductions are meaningful but not disastrous," Buchanan said. "The impact on currencies is in general likely to be contained, although equity markets could be in for more volatility."
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