Study: IT slowdown to hit Asian economic growth

A slowdown in U.S. and European economies and reduced demand for information technology goods will hit growth in the ten largest economies in East Asia, excluding Japan, in 2001, according to forecasts from the Institute of Developing Economies (IDE), a unit of the Japanese government-backed Japan External Trade Organization (JETRO).

East Asia has enjoyed rapid growth in exports in recent years, establishing itself as a supply base for the world’s electronics industries, and benefits from strong growth in the U.S. economy and the economic recovery in Japan, said IDE in a summary of the report.

For the year just ending, the report forecasts economic growth in the ten major East Asian economies excluding Japan will be 7.8 per cent – 1.4 percentage points higher than 1999. The report covers China, Hong Kong SAR, Taiwan, South Korea, Indonesia, Thailand, Malaysia, the Philippines, Singapore and Vietnam.

For 2001, IDE said it expects growth in the region to slow to 6.8 per cent on the back of a reduction in demand for IT-related goods and a general downturn in the economies of the U.S. and Europe. The figure is one percentage point below that expected for 2000, although still higher than that attained in 1999.

The fall in demand for IT related goods is expected to hit South Korea and Malaysia the hardest, said Dr. Mitsuru Toida, the IDE researcher responsible for the report. “First of all, it is expected to hit South Korea because it is the second biggest country to produce memory chips, and secondly Malaysia because something like 60 per cent of (Malaysian) exports are IT related,” he said. “The third is then Singapore and fourth is Taiwan.”

Even so, growth in these nations is expected to remain relatively strong. South Korea will be able to turn to its auto industry to help drive growth while Toida anticipates a series of government measures might keep growth high in Malaysia and Singapore.

“The governments of Singapore and Malaysia both have a free hand to support the economy and the governments really want to push forward the IT infrastructure. Malaysia is keen to expand its knowledge industry and Singapore plans to push electronic commerce and the financial conditions in these two countries are good, so we predict both countries will stimulate the economy by spending on IT-related projects.”

The newly industrialized economies in the region will see export growth rates halve during 2001, IDE forecast. Growth is expected to be highest in Singapore, at 6.9 per cent, followed by South Korea, 6.7 per cent, Taiwan, 6.1 per cent, and Hong Kong, 4.7 per cent.

Among the remaining ASEAN (Association of South East Asian Nations) member nations, growth is forecast to be 4.7 per cent in Indonesia, 4.8 per cent in Thailand, 7.1 per cent in Malaysia, 3.5 per cent in the Philippines and 7.2 per cent in Vietnam. China, which is planning to enter the World Trade Organization (WTO) early in 2001, is expected to lead the ten-country group with growth of eight per cent, said IDE.