Monday, April 26, 1999

Hot Asian markets
may fuel recovery

Pacific island economies struggled

By Dirk Beveridge
Associated Press


HONG KONG -- Asia's financial crisis may not be over yet, but its stock markets are red hot and analysts predict its economies may start rallying too.

While traders may be overly exuberant, strong gains on regional stock markets are likely another sign the global economy is recovering from the troubles set off nearly two years ago by the Asian turmoil.

Many experts see the world economy stabilizing, with a strong chance of healthy growth resuming in 2000.

Ian Harwood, head of economics and strategy at investment bank Dresdner Kleinwort Benson in London, sees the recent Asian market rallies, which have followed a string of record gains by the Dow Jones industrial average, as "over-enthusiasm."

Harwood predicts the global economy will grow by about 2 percent this year. He expects some of the troubles in emerging markets will run their course, not only in Asia but also in Brazil, where a currency crisis failed to infect the rest of Latin America.

"We don't think it's going to be a storming recovery," Harwood said. "We think it's going to be a slow one."

The International Monetary Fund, whose bailout packages have come to the rescue in Asia's biggest recovery story, South Korea, has predicted the world economy is stabilizing and should return to healthy growth next year. South Korea has even started paying back some of its IMF loans early.

Stephen Roach, chief economist for New York investment bank Morgan Stanley Dean Witter, has dubbed 1999 as a "year of healing for the global economy."

"The patient is still in bed," Roach said Friday.

"The patient is sitting up, not yet smiling. All the bandages aren't off. But the patient is alive."

"The numbers coming out of the United States, the United Kingdom, Asia and even in Europe suggest that confidence has improved a bit," said Andy Cates, senior international economist at Warburg Dillon Read in London.

"I think as far as the global economy moving forward goes, much, as ever, hinges on the United States."

Some bears worry that any decline on Wall Street could spoil the party.

U.S. consumers are driving global demand, and if their paper profits from the extended bull run on Wall Street vanish, they could stop spending and kill off any hopes for a global recovery.

The outlook isn't rosy everywhere. The Russian economy remains troubled, and the government is still badly in need of international loans. Indonesia's economy, which skidded into a depression, also has an uncertain outlook. But elsewhere, there are signs of a rebound.

In Hong Kong, for example, blue chip stocks have been soaring, even though the territory is in its worst recession in many years, with joblessness setting new records every month and consumer prices falling.

The Hang Seng index recently pushed above 12,000 points for the first time since its collapse in October 1997. The Hang Seng rose 221.72 points today to close above 13,127.02, and is up more than 30 percent so far in 1999.

Other markets in Asia have also been hitting highs. In Tokyo, Asia's biggest market, the Nikkei 225 stock index is up 22 percent this year. That despite the fact that Japan, the world's second-largest economy, remains mired in its worst recession since World War II.

Pacific island economies
struggled in 1998



WELLINGTON -- The economies of most Pacific island nations contracted in 1998, but the average fall was smaller than in 1997, the Asian Development Bank said in its annual report issued today. The average decline across the 12 nations was 0.2 percent, against an average contraction of 3.3 percent in 1997, it said.

"Real GDP (gross domestic product) declined in nine of the 12 countries, particularly in the Solomon Islands which was hardest hit by the Asian financial crisis," the bank said. The Solomons economy shrank 10 percent in 1998.

For seven nations it was the second straight year of decline as drought came on top of trade problems. Inflation averaged 8.2 percent, well up from 3.9 percent in 1997 due to some currency devaluations. "In line with the recessionary conditions inflation rates were below four percent except in the cases of Fiji, Papua New Guinea, Samoa and the Solomon Islands where substantial currency devaluations occurred and inflation rose to between five and 12 percent," the bank said.

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