Southeast Asia economies declining and still coupled to US.

THis is from the Asiatimes.
Interesting that it is the most open of these Asian economies that are most effected. Singapore in particular is actually in recession while most others are simply showing declines in growth. It seems that Indonesia might require loans from the IMF. The terms would no doubt limit severely freedom for Indonesia to set its own financial policies.


Down and still coupled
By Shawn W Crispin BANGKOK - With falling exports, declining confidence and tight liquidity squeezed by fleeing foreign capital, Southeast Asia has wholly failed to decouple from the mounting downturns in the United States and Europe. Looking ahead to 2009, the question is not if, but rather how far, the trade-geared economies of the Association of Southeast Asian Nations (ASEAN) members will fall in line with the global economy. As global trade collapses, some of ASEAN's 10 members will be hit harder than others, economists predict. The region's most open economies, namely Singapore and Malaysia, where merchandise exports respectively represent around 200% and 100% of gross domestic product (GDP), will be particularly hard
hit. Others including Thailand, Indonesia and the Philippines, where exports represent a smaller, but still substantial, percentage of GDP will also see declining growth. Hopes that China - with which ASEAN has a trade surplus driven by exports of raw materials and component electronics and computer parts for re-export to third countries - might buoy the region's economies have faltered with recent softening in China's export figures. Meanwhile, economists say that the stimulus package announced last month by China has been tailored mainly to tide over the domestic economy and Beijing has indicated no plans or extraordinary measures to lift the region's sinking economies. Swiss investment bank UBS said in a recent note to clients that for the first half of next year it expects China's "appetite for FDI in the region will remain quite low" and that China "would be only a marginal positive factor for Asia and ASEAN commodity exporters in 2009". That analysis underscores now prescient Credit Suisse quantitative research from November 2007, which demonstrated that recent strong growth in ASEAN exports to China were largely intermediate goods intended for final export to now-slumping US, Europe and Japan. The same research questioned how much ASEAN had really decoupled from US demand, noting that 70% of intra-Asia trade was in intermediate goods and that more than half of China's total imports were destined for re-export to mainly Western markets. As such, slackening commodity demand, including from China, will impact adversely on several economies in the region. Earlier this year, certain Asian countries reaped huge profits from fast-rising global commodity prices but are now doubly exposed to deteriorating global demand and declining terms of trade. Malaysia and Indonesia, ASEAN's top commodity exporters, are expected to take the biggest hits on this front. Thailand, despite its position as the world's leading exporter of rice, tapioca and raw rubber, is because of even higher oil and gas imports a net commodity importer and so less exposed to global price swings. Net fuel and food importing Philippines, which earlier this year experienced the highest local inflation rates in 17 years at 12.2%, will also net-net benefit economically from softening global commodity prices. Policy mattersWhile all economies in the region are expected to fall, how hard they actually land will depend on individual governments' policy responses. Some are better placed than others to ramp fiscal spending and slash interest rates to spark more domestic demand and locally oriented investment
. How well governments devise and implement those policies will go a long way in determining the extent of individual countries' slowdowns in 2009. Indonesia, which faces severe budget deficit financing issues and has in recent months been hounded by rumors it may seek an International Monetary Fund rescue package, is seen as the most wobbly of the regional lot. Faced with stubbornly high inflation, current account deficits and a depreciating currency, the government's fiscal options and Bank Indonesia's monetary maneuverability will both be limited in their scope to stimulate economic growth. UBS notes that around 50% of Indonesian government bonds are now owned by local banks and few wish to increase that share, as seen earlier this year when foreigners wishing to dump their local positions sold mainly to the central bank and local pension funds. Should its terms of trade decline further in 2009, some analysts fear Indonesia could be pushed into a 1997-style crisis, driven by both foreign and domestic capital flight. Barring that worst-case scenario, UBS predicts growth will fall to 3% next year, or nearly half this year's 5.8%. Thailand is in better shape financially but faces uncertain political risks, which took a sharp toll on the economy in 2008. Those risks were underscored when anti-government protesters besieged Bangkok's main international airport for eight days beginning in late November. The closure caused exports - which currently represent around 65% of GDP - to fall 18.6% year-on-year in November, resulting in a US$1.3 billion loss in overseas sales, according to Commerce Ministry figures. A new Thai government installed in December has raised hopes for stability and has already indicated plans to double the outgoing administration's extra-budgetary spending to 200 billion baht (US$5.8 billion), including funds to prop up falling agricultural prices. Fiscal stimulus will be paired with monetary loosening, signaled by the Bank of Thailand's drastic 100 basis point benchmark interest rate cut on December 3. While many economists predict Thai growth of around 2%, others believe the stimulus won't prevent the economy from tilting negative in 2009. As perhaps Asia's most trade-dependent economy, Singapore had already slipped into recession by the third quarter of 2008, with - 0.6% year-on-year GDP growth. With global trade forecast to contract further in the quarters ahead, economists expect Singapore's growth to remain in negative territory through 2009. Given the government's perceived penchant for sometimes overstating growth on the upside, the actual economic situation next year could be worse than official statistics indicate. Declining export volumes are expected to ripple adversely through the local economy, leading to significant lay-offs in the manufacturing sector and dampened consumer sentiment, including towards the crucial property sector. The government is expected to provide substantial fiscal support, including through the use of off-budget measures such as tax rebates, micro-loans and rental rebates, according to UBS. The establishment of a US$30 billion "swap line" between the US Federal Reserve and the Monetary Authority of Singapore has alleviated earlier dollar liquidity concerns and set the stage for monetary loosening at the MAS's next policy meeting in April. But with global trade faltering, local demand for US dollars should decline, depending, of course, on how deeply MAS cuts interest rates and whether monetary easing can spark a new investment cycle, which seems doubtful for 2009. Malaysia will face similar if not tougher economic challenges. UBS predicts economic growth will drop drastically from 5.4% in 2008 to 0% in 2009, driven down by the double whammy of declining exports and terms of trade in line with falling global commodity prices. Commodity exports represented 26% of GDP in 2007, driving a balance of payment surplus of $13.2 billion. This year's balance of payments is on course to just break even, and economists expect that statistic will likely turn negative in 2009. Credit Suisse noted in the aforementioned 2007 research that for every percentage point drop in US GDP growth, Malaysia's will fall 1.6%. That's led some economists to contend the government has moved too timidly in using fiscal and monetary policy to offset the negative impact of collapsing exports. The perceived inaction is reflective of the government's still bullish forecast for 3.5% economic growth next year, optimism aimed at deflecting growing criticism from a more assertive political opposition. For all the bad news, there is some upside - at least for the brave of heart. ASEAN stock markets collapsed across the board in 2008, with many losing around half their market capitalization year-on-year due to foreign investor flight. That's driven average share prices down to near 20-25 year lows on price-to-book valuations and exceptionally low price-to-equity ratios of around 8.6 times earnings, according to UBS. For those with the liquidity and patience beyond 2009, the region's battered, yet comparatively deleveraged equities are trading at bargain basement prices. Shawn W Crispin is Asia Times Online's Southeast Asia Editor. He may be reached at swcrispin@atimes.com.