...Bottom Line: 2004 Realistic, Major Risks Lie in 2005
Risks to Southeast Asia growth have heightened as a result of a firm resolve by Chinese policy makers to engineer a slowdown, and the increased risk of a hard landing in 2005 given that, thus far in 2004, no slowdown appears evident. Most significantly, there appears to be a confluence of three wild cards: surging oil prices, the China slowdown, and the onset of a Fed tightening cycle.
Despite the global wild cards, our Southeast Asia economic forecast remains quite robust. Our 2004 and 2005 Southeast Asia growth forecast (Exhibit 10) has been largely based on our global, China, and Northeast Asia growth expectations. A probable upward revision in growth forecasts for China and Northeast Asia for 2004 should benefit global growth and in turn buoy Southeast Asia growth assuming other threats – energy, rate hikes, China hard landing, and “secondary” global demand weakening – are unlikely to exert a significant economic impact over the remainder of 2004.
The same cannot be said for our 2005 forecast. This is because the main China risk – the timing and mode of the slowdown – lies squarely in 2005, not 2004. The risk of a China hard landing in 2005 clearly is not fully factored in our 2005 Southeast Asia forecast. While our global forecast looks quite benign for 2005, it is largely due to our belief that global demand cannot be permanently salvaged by the Fed and global central banks’ easy liquidity stance. If the world does experience a full-fledged China hard landing in 2005, a full “blown-away” energy crisis, coupled with aggressive Fed tightening and “secondary” global demand weakening due to the triple wild cards, Southeast Asia growth could be under further threat next year.
Wednesday, May 12, 2004
Wild Card Impact On S.E.Asia Growth
After searching around the web for pertinent and balanced information about China's possible direction and impact on the global economy, I came across Daniel Lian's post at Morgan Stanley. The entire post has many tables and other useful information. Daniel extends Stephen Roach's "Wild Card" scenario by assessing the other S.E.Asian countries' possible growth potential, while factoring in a China soft or hard landing, oil and the Fed. I would further add the currency wild cards to the play, i.e., the dollar - euro - yen - yuan. I don't have much to add at this time. It looks like anyone's game, in any direction, at this point.