International Molding Report

What theJapanese economy will do over the next year and beyond directlyimpacts the economic outlook for U.S. molders.

Here is why. As Japan's economy strengthens it serves as agrowth locomotive for all of Asia. This expands export opportunitiesfor U.S. molders while

simultaneously lessening import pressures on U.S. markets.As Japan's and other Asian economies boost domestic consumption,fewer transportation parts and electronic components are importedinto the U.S. This directly expands the markets for U.S. moldersof such high-value-added items.

Four molders of medical devices say that they have all seenhealthy increases in Japanese and other Asian orders. One majorsupplier of automotive parts told us that for the first time inthree years it has been asked to quote on parts to be exportedto Japan.

Japan has been in serious trouble for the past decade, showingessentially no growth at all. Many economists doubt that Japanwill return to the former growth rates any time soon. We disagree.

We believe that the Japanese economy - profoundly changed -will surprise the world in the 2001-to-2006 period with high economicgrowth regardless of current oil pricing problems. We anticipateGDP growth jumping from virtually nil in 1999 to 3.1 percent orhigher in 2001.

The miserable economic performance of the past decade forceda profound change in the Japanese economic model. In a break withtradition, many there have started to embrace individual creativityand initiative, less rigid management, and an invigorating entrepreneurialspirit. In this arena Japan is beating Western Europe, which continuesto have a difficult time discarding rigid and obsolete industrialpolicy that favors giant firms over small entrepreneurs.

Japanese molders of tomorrow will be far more flexible, ableto go after new market opportunities with surprising speed. Softwaredevelopment, innovative use of computers, and even the use ofthe Internet for business operations have long been weaknessesof Japan's economy.

But this is changing also. Here is one example. In late Septembera government blue-ribbon panel said it wants Japan to overtakethe U.S. as a high-speed information technology (IT) giant by2005.

"It is perfectly possible for us to overtake the U.S.in five years' time, but for us to do that we are going to haveto change some laws," Sony Corp. Chairman Nobuyuki Idei,who heads the panel, said.

While many in the U.S. still doubt that Japan's internal reformswill succeed, leaders in Asia see the change. The result: a generalincrease in growth projections. The first half of 2000 showeda generally stellar performance, although a few nations with persistentdomestic problems bucked the trend.

As you can see in Table 1 we have issued strong growth forecastsover the next five years for Hong Kong, Taiwan, Singapore, Australia,China, the Philippines, and Malaysia, mostly due to a resurgencein trade and domestic consumption. In Southeast Asia, Thailandand Indonesia - either because of slumping currency values ordomestic unrest - are growing slower than anticipated.

In September the World Bank reported that Asia's overall outlookis good even though it remains vulnerable to demand-related shocks;the region's 1997 financial crisis left a triple legacy of heavydebt, skittish investors, and greater household insecurity. Thebank, which expects growth this year in East Asia to exceed lastyear's blistering pace of 6.9 percent, said "some of theclouds that had darkened the economic outlook at the start ofthe year" were lifting.

The Manila-based Asian Development Bank also issued a cautiouslyoptimistic economic forecast. It raised its 2000 forecast forAsia to 6.9 percent from 6.2 percent, due to improving domesticdemand and buoyant external demand, and raised its projectionfor next year to 6.5 percent from 6.0 percent.

By comparison, the world economy will expand 4.7 percent thisyear, its fastest pace in a dozen years, powered by the reboundof Asia's economies and greater-than-expected growth in the U.S.and Russia, the International Monetary Fund said. In September,the IMF raised the forecast for global growth by half a percentagepoint from its prediction in April. It predicts the economy willexpand 4.2 percent next year.

Japan's Growth Prospects

In late September the Bank of Japan issued a bullish forecast,noting a sharp rise in industrial output and solid export orders.Even a sluggish consumer market shows signs of growth.

"Overall, the economy is likely to recover gradually,led mainly by business fixed investment unless there are majoradverse external shocks," the bank said.

The evidence of such growth specific to injection molding issolid. Domestic production of injection molding machines betweenJanuary and June 2000 rose 56.8 percent year-on-year to ¥99.44billion ($922 million), according to the Assn. of Japan PlasticsMachinery. Strong demand for information technology gear boostedsales of associated production equipment, particularly moldingmachines with less than 100 tons of clamping force. Productionof machinery in that class jumped 98.6 percent. The associationalso reported that production of injection molding machines inJune rose 28.4 percent over a year earlier.

The Repton Group projects that the output by injection moldingplants in Japan will rise almost 11.4 percent in the January-to-September2000 period, compared to the same period in 1999. In 2001 thatgrowth rate will decline to a sustainable 3.2 percent, and thenaccelerate to 3.8 percent through 2006.

The influential Japan External Trade Organization (JETO) inSeptember said that Japanese international trade is moving fromrecovery to expansion. "Japan's trade activity recoveredin 1999, shifting from negative to positive year-on-year growthboth in terms of volume and U.S. dollar value," JETO sourcesreported. "It was the first positive year-on-year growthin terms of volume for exports and imports in a year, and thefirst yearly expansion in U.S. dollar terms in three years. TheU.S. dollar value of Japanese exports amounted to $417.4 billionin 1999, up 8.1 percent from the previous year, while importswere up 10.9 percent to $309.7 billion."

Other Japanese data show that the export of manufactured plasticsgoods - which includes injection molded items - has grown in thefirst eight months of this year by 8.9 percent in value, withmost of the additional trade going to other Asian nations.

Plans by the Japanese government to deregulate key segmentsof the economy will, say many Japanese business sources, be positive.These moves will lead to healthy competition, encourage financialrestructuring, and boost needed investment in infrastructure and"human resource building" (a term in Japan for adjustingtough anti-immigration rules and shifting to a more individualizededucational approach).

What Molders Should Know

All this adds up to several key developments of direct interestto U.S. molders:

Japanese molders will become very aggressive trying to find- often in the U.S. - joint venture partners. This is a consequenceof the global sourcing demands of major computer and automotivefirms.