Weakness in U.S. and Japan Saps Demand for Exports : Asia Feels Sting of Downturn 
International Herald Tribune
March 30, 2001
Michael Richardson 

Sim Wong Hoo, the founder and head of Creative Technology Ltd., which designs and makes digital entertainment products for personal computers and the Internet, says he has never seen such savage conditions in his 20 years in the often turbulent electronics industry.

"Not even during the 1997 Asian crisis," he said recently, after announcing that the company, which manufactures in Singapore and the United States for the global market, would cut its work force of 5,500 by 10 percent.

"This is the worst of times," the normally genial Mr. Sim said, referring to the slowdown in demand hitting the electronics industry. "It's hardware, software, Internet, chips, everything."

Nearly four years after the Asian financial crisis erupted, economies are again being severely buffeted, but this time from the simultaneous weakness of two major markets — the United States and Japan, which absorbed more than a third of Asia's exports last year.

After the crisis struck, the United States helped pull Asia out of its slump by buying many of its manufactured goods. Japan continued to limp along, as it had since 1990, barely showing positive growth. But even Japan's imports from Asia rose to nearly $140 billion in 2000 from $98 billion in 1998

Now East Asia's export-dependent economies are starting to lose momentum as the double-whammy impact of the simultaneous decline of the U.S. and Japanese economies ripples through the region.

Citing vulnerability to the slowdown in the United States and Japan, Malaysia's central bank Wednesday forecast that the economy would grow by 5 percent to 6 percent this year, down from a government estimate of 7 percent in October and 8.5 percent for 2000.

The day before, Prime Minister Mahathir bin Mohamad of Malaysia announced a 3 billion ringgit ($789.6 million) stimulus package to offset the impact of the U.S.-Japanese slump.

Last week, Thailand's commerce ministry cut its export growth target for 2001 to 9.5 percent from 11 percent. Exports fell for a second successive month in February as U.S. and Japanese customers reduced orders for electronics parts and cars. Weakening exports could pare Thailand's growth to 3 percent this year from as much as 4.5 percent in 2000, the central bank said.

Prime Minister Goh Chok Tong of Singapore warned Wednesday that growth might be halved in 2001 to around 5 percent from almost 10 percent last year. Japan, meanwhile, is expected to eke out growth of somewhere between 0 and 0.5 percent, while the United States edges forward by maybe 1 percent and Europe by 2 percent.

Economists are particularly concerned about the impact of the U.S.-Japan slump on China, which sends more than 38 percent of its exports to the United States and Japan.

They are also concerned about the impact on the Philippines, which relies on the United States and Japan for 43 percent of its export sales.

What really worries executives like Mr. Sim, as well as bankers and investors, is that they do not know how long the downturns in the United States and Japan will last, or how deep they will go.

"As U.S. demand weakens and perhaps contracts, Japanese demand could wane and deepen the decline in the Asia export cycle," said Bill Belchere, head of Asian fixed-income research and economics at the Singapore office of Merrill Lynch.

Analysts said that there is a tight correlation between U.S. investment in information technology and computers, and Asian exports, especially for countries such as South Korea, Singapore, Taiwan and Malaysia that have large electronics sectors.

Since the Asian financial crisis, buoyant U.S. demand has kept many companies in Asia afloat, helping them finance their working capital and investment requirements.

The deceleration in exports began in the fourth quarter last year as the slowdown in U.S. spending started to hurt Asian suppliers. In China, exports edged up a mere 0.8 percent year-on-year in January.

"Although Asia is better protected than previously, and we are unlikely to see a repeat of the financial crisis of 1997-1998, it is still vulnerable to a U.S. economic slowdown and reduced demand for Asian imports from Japan," said John Bailey, a director at the Hong Kong office of Standard & Poor's Corp.

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