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SPEAKING
FREELY
The Tigers slow
down
By Park Bun Soon
Speaking Freely is an Asia Times
Online feature that allows guest writers to have
their say. Please click here
if you are interested in
contributing.
The economies of
five major Southeast Asian countries - Singapore,
Thailand, Malaysia, Indonesia and the Philippines
- are steadily slowing after a year of good
performance. The pace of this trend, first visible
in the fourth quarter of 2004, began quickening
during the first quarter of 2005. Singapore's
growth rate dropped from 6.5% in the fourth
quarter of 2004 to 2.5% in the first quarter of
2005; Thailand's quarterly growth fell from 5.3%
to 3.3% in the same period; Malaysia's industrial
production in May 2005 contracted 0.4%
year-on-year, the first such negative growth in
three years. Indonesia's industrial output fell
for two straight months in March and April 2005.
In Singapore, industrial output has similarly
dropped since March this year.
Exports are
slowing for all Southeast Asian countries with the
exception of Indonesia. In 2004, Malaysia,
Singapore and Thailand registered export growth
rates of 21%, 24% and 23% respectively, but this
year, they all fell to the 10% level. The
Philippines' exports grew 9% last year, but they
actually contracted in February and March this
year. The Philippines' exports expanded at a
slower pace of 8.8% in April 2005 and then dropped
precipitously to 1.1% in May.
Imports,
however, were sharply rising in these countries,
worsening their trade balance. Thailand and the
Philippines were struck by trade deficits, and
Thailand in particular showed its first current
account deficit since the fourth quarter of 1997.
The 2005 annualized growth rates for these
countries are expected to be lower than originally
forecast. The Singapore government expects GDP
growth to hover between 2.5% and 4.5%, Malaysia
has downgraded its growth target from 6% to 5.1%,
and Thailand and the Philippines each place their
growth at below 5% from 6.1%.
Worsening
conditions
The slowing economies of
Southeast Asia reflect weakening import demand in
the global economy, especially for information
technology (IT) goods, on the back of declining
economic growth rates in the United States, Japan
and European Union. Although the proportion of IT
exports may differ from country to country, it
accounts for over 60% of Philippines' exports and
50% of Malaysia's. The pace of slowdown in overall
imports has been moderate in the United States,
but imports from Southeast Asia have significantly
declined. Top US imports from Singapore and the
Philippines have consisted of IT goods with their
accumulated import totals as of the end of May
2005 showing a significant drop.
High oil
prices have affected Southeast Asia's export
competitiveness, bringing about greater
inflationary pressures and eroding consumer
confidence. Corporate profitability and export
competitiveness are falling as oil-exporting
countries Malaysia and Indonesia now find they are
importing oil products.
The biggest reason
for export slowdown in Southeast Asia comes from
sluggish exports to China. China's import growth
has dramatically fallen from 35.8% in 2004 to
13.9% in late May 2005. China's import demand has
significantly decreased as global prices for raw
materials have stabilized and its industrial
structure has changed. In view of its high growth
of 9.5% in the first half 2005 and similarly high
growth in exports compared to last year, a new
perspective is needed to analyze Southeast Asia's
export slowdown to China. It now appears that the
fall in exports of primary goods and processed
materials accounted for Southeast Asia's export
slowdown. In the manufactured goods sector,
shipment of electronic parts was particularly
sluggish.
A slowdown in the global IT
market and structural development of China's
economy have had the effect of slackening the
region's exports - and hence its economic growth.
On top of a global slowdown in IT business,
China's development of parts and intermediary
goods has had an import substitution effect. Also,
the price stabilization of primary goods from
Southeast Asia combined with China's industrial
modernization has cut import demand from the
region.
Regional
responses
Southeast Asia regards
deterioration in the export environment as part of
the global economic cycle, and governments in the
region do not particularly appear anxious to
launch pump-priming measures to revitalize their
economies. For example, Thailand has announced
plans to invest a total of $43 billion for a
variety of big-ticket projects over the next five
years, but this is more a medium-to-long term
measure than for immediate effect.
Trying
best to take advantage of economic conditions, the
region seeks to conclude free trade agreements
between ASEAN (Association of Southeast Asian
Nations) and countries like China, Japan, Korea,
and India. At the same time, ASEAN members are
individually seeking FTAs (free trade agreements)
with the US, Japan, Australia, and New Zealand.
The region is seeking to increase exports to China
through the China-ASEAN FTA that fully came into
force in July 2005. There are plans to use this
FTA as leverage for more FTAs with Japan and
Korea.
Southeast Asia is important for
Korea from the point of industrial division of
labor as well as a trading partner. Korea's
exports to Southeast Asia have slowed recently but
full implementation of the China-ASEAN FTA will
deliver further blows. In order to compete better
against Chinese goods, Korea must work harder to
develop goods with added value, of high quality,
and in greater variety. Korea should endeavor to
move into less developed markets in Southeast Asia
to tap into their market potential. Policy must be
drawn up to expand investment and trade with the
Indochina countries of Vietnam and Cambodia. For
this purpose, Korea must be generous in offering
its development experience as well as official
development aid (ODA) to these countries.
Park Bun Soon is a chief
economist at the Global Economy Department, Samsung Economic Research
Institute. He can be reached at
bunsoon.park@samsung.com.
(Copyright
(c) 2005 Samsung Economic Research Institute)
Speaking Freely is an Asia Times
Online feature that allows guest writers to have
their say. Please click here
if you are interested in
contributing. |
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