FOCUS : Asia’s Economic Stars Expected to Flicker, Not Dim

Asia’s developing countries will continue to be the economic stars among the world’s economies this year, posting robust growth rates. But rising labor costs, slower export growth and other problems will generally reduce their rates of expansion compared to last year.

That’s among the many conclusions reached by the Asian Development Bank, a 49-member-nation institution based in Manila that provides funds and technical assistance to Asia Pacific nations. Its projections were part of the bank’s annual economic outlook report released last week during its annual meeting in Vancouver, British Columbia.

Much of the growth in the Asia Pacific region in 1991 and 1992 will be generated by the newly industrializing economies of Hong Kong, Taiwan, Singapore and South Korea--known as the Four Tigers--and by the burgeoning economies of Indonesia, Malaysia and Thailand, according to Malcolm Dowling, assistant chief economist.

Still, even these energetic emerging economies face some difficulties. For example, as a result of slower growth in the United States and Europe, there will be less Western demand for Asian goods.

Also, these countries face transition problems. The Four Tigers are trying to reduce their reliance on lower-skilled manufacturing by launching efforts to stimulate high-technology industries. On the other hand, the Southeast Asian trio--Indonesia, Malaysia and Thailand--are trying to augment commodity exporting by building up manufacturing.

Here is a summary of the bank’s outlook on several key developing Asian nations:

Hong Kong: Weak investment growth and the continued out-migration of professionals and skilled workers have hindered the colony, limiting its ability to return to the high growth rates of the early and mid-1980s. Hong Kong’s labor shortages and rising labor costs stem largely from the outflow of many residents leaving before Britain relinquishes control of the territory to China in 1997.

However, there has been some resurgence in exports and growing demand for domestic products. In addition, Hong Kong companies are benefiting from manufacturing investments in China, where labor costs are extremely low.

Thus, after two years of relatively slow growth, Hong Kong’s economy will improve in 1991 and will experience “stronger growth in 1992.”

South Korea: Large wage increases and appreciation of the currency has undermined the nation’s export competitiveness, but a surge in government spending has prompted a rapid expansion in domestic demand.

South Korea is trying to reduce its reliance on labor-intensive production and generate high-technology industry. Its economic prospects depend largely on its ability to restructure the economy.

“Policy-makers are faced with difficult choices as short-term concerns, such as rising inflation and stagnating exports, compete with longer-term issues such as upgrading industrial technology, improving labor-management relations and liberalizing the financial sector,” the report said.

Singapore: Economic growth will decline further in 1991 as the nation feels the continuing effects of a slowdown in industrialized countries. Rising wages, low productivity growth and a strong currency could further hurt exports.

The effects of lower export growth will be softened by the recent development of a broader base of economic activity, especially the expansion of the financial and business services sector.

“To overcome the bottlenecks of land, labor, water and geographical size, the government has begun to promote the concept of an economic growth triangle with . . . the neighboring countries of Indonesia and Malaysia. The growth triangle concept is critical in Singapore’s efforts to shift its economic and manpower resources from manufacturing to high technology and financial and business services,” the bank concluded.

Taiwan: Business confidence eroded during the early part of 1990 by political uncertainty, social disturbances and the collapse of the nation’s stock and real estate markets.

To counter the unusually low level of private investment and improve the island’s infrastructure, the government has launched a new six-year development plan designed to stimulate economic growth.

“The economic transition of (Taiwan) from high export-driven growth to more moderate growth, led by domestic consumption and investment demand, is likely to continue in the medium term,” the bank said.

Indonesia: The nation has reduced its reliance on oil exports by further developing its manufacturing sector. When world oil prices rose sharply in the wake of the Gulf crisis, the country enjoyed a financial windfall. However, oil price benefits have been offset by slow growth of primary exports and more rapid growth of imports.

Indonesia should deal with poverty and the wide gulf between rich and poor as it industrializes to ensure stability, the bank urges.

“Growth prospects for Indonesia for the next two years remain excellent. . . . If the policy stance of encouraging rapid structural change (such as industrialization) is maintained during the next few years, the Indonesian economy should continue to benefit,” the report said.

Malaysia: The economy has continued to grow impressively thanks to a large inflow of foreign investment and a windfall in oil revenues.

By pursuing pragmatic, growth-oriented policies--including further development of infrastructure and promotion of small- and medium-size industries--Malaysia will continue to attract foreign investment.

“The Malaysian economy is expected to slow somewhat during the next two years as its export growth softens due to the economic slowdown among its major trading partners. The Malaysian economic will, however, continue to remain one of the most dynamic in the world since it has become more broad-based and domestic demand has replaced external demand as the major contributor to growth.”

Thailand: Thailand experienced rapid growth in 1988 and 1989 as its manufacturing base expanded and overall living standards improved.

However, labor shortages persist in a wide range of skilled occupations, and the government is faced with the difficult task of restraining inflation without causing a slowdown in growth. Also, investors may be more cautious in the short term in the wake of the military coup in February.

“Despite these difficulties, Thailand is well placed to sustain its growth momentum in 1991 and 1992, albeit at a somewhat slower rate. . . . Thailand should fare well in comparison with other countries in the region as it has developed a wide range of export products and confidence in the economy remains strong.”

ASIA’S GROWTH OUTLOOK Asian nations are expected to continue to grow much faster than the United States and other Western nations.

Projected annual percentage growth rates of gross domestic product:

Nation 1990 1991 1992 Hong Kong 2.3 3.5 4.5 South Korea 8.7 7.5 6.8 Singapore 8.3 5.9 6.5 Taiwan 5.1 5.9 6.0 Indonesia 7.0 7.0 6.6 Malaysia 9.4 8.5 8.7 Philippines 2.5 2.1 4.1 Thailand 10.0 7.4 8.0 China 5.0 5.7 6.0 Japan 5.6 3.1 4.0 United States 0.9 0.5 2.3 Germany 4.6 2.8 2.6 World 1.7 1.0 2.7

Source: Asian Development Bank