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Asia's Tea Leaves Show Delayed Spring

The resurgence of spring will come some months after the official start of that season for Asia's battered economies. While the next three or four months will be rough for injection moulders in that region, most economists now project a resumption of some solid growth in June or July. Still, the economic troubles--this Asian flu--will last just long enough to impact the major markets for Asia's injection moulders: North America and Europe, although more impact will be felt in Europe.

What will fuel resumption of growth is that in many countries such as South Korea bail-out plans are anticipated to work and those will again stimulate foreign investment, stronger currencies, strong domestic markets, and growing exports. The World Bank's chief economist Joseph Stiglitz said in March that while it was difficult to predict how long it would take for Indonesia to come out of its crisis, such countries as South Korea and Thailand managed the transition brought about by the lingering economic crisis smoothly.

"These economies have been demonstrating very strong flexibility. The tripartite agreement in South Korea calls for substantial wage cuts and changes in labour laws, which will help restore strength to the labour market," he said. "Europe and the United States are going through a period of robust growth. A strong United States and Europe provide one basis of a quicker than normal recovery," he added.

One key factor: machinery sales are projected to take off again soon. Sources at two Japanese injection moulding machine suppliers as well as one German exporter of such machinery say that new orders to Asia declined sharply since September 1997. "Now," said one, "we are being asked to quote again and we believe that our new orders will come in at a very healthy clip starting June or July. We may be up over 1997 in actual sales by more than 15 percent, and that's in the Asia market." Orders are coming from Russia as well.

Another key factor: oil is now at its lowest price in nine years. The global slump in oil prices--down at its worst to about US$ 13.5/barrel--have cut operating costs for every manufacturing operation and other such companies as trucking firms and airlines. The primary beneficiaries: Japan, which relies 100 percent on oil imports; the United States and Europe, where lower oil prices will further stem the risk of inflation; and Asian economies, whose weak currencies forced up energy bills in the last year.

China: How Strong?

Much of the outlook for the Asia crisis is coupled with the outlook for China's currency and economy. Many analysts in Washington and London project that China's growth rate will drop sharply this year and that Beijing may be forced to devalue the currency--something the Chinese government says it won't do. Any tangible drop in China's growth will have a major impact on Asia economies that are becoming dependent on China.

In March, China's new premier Zhu Rongji issued his economic agenda: remake China's giant state enterprises as world-class corporations, and weed out industrial loss-makers within three years. The country's technically bankrupt commercial banks are to be recapitalized and their bad debt cut. Zhu said also that "China's yuan cannot be devalued. . . an objective we must meet because it will have a bearing not only on the development of China but also on the prosperity and stability of Asia."

Foreign analysts predict that the pain caused by Zhu's massive structural reforms will force China's currency down later this year and this will impact all of Asia. Chinese exports have grown somewhat less in recent months and a lower currency value could boost exports again.

Data released in March show that China's industrial output growth dropped sharply to 8 percent in the first two months of 1998 from a year earlier--a sign that sluggish domestic demand is stalling the economy. Chinese government data also show that a very slack demand for consumer goods triggered production cuts as firms slashed inventories. This affects many injection moulders in China proper.

Euro's Shadow

What will happen to the European markets in the months until the monetary union remains hard to predict. Sources in Europe tell us that it is an "open secret" that many countries deftly manipulated their statistics to qualify for joining the Euro. For instance, with Italy's admission to the European Monetary Union (EMU) a virtual certainty, analysts fear the government may relax its pursuit of the structural reforms Italy badly needs.

But will Italy now stay the course? Severe unemployment in Italy's south and a very high tax burden may force a return to high deficits and may weaken Italy's economy. The same is true in Germany where elections this fall--coupled with record unemployment--cast a very long shadow. "All the [Euro] economies may be in for a rude surprise," admitted a senior official in Germany's Ministry of Economics, "and this could--after the initial euphoria--lead to a Europe-wide recession in late 1999."

Electronics Strong

Moulders in the fast growing electronics market should anticipate a very sharp growth increase late next year and the next, almost regardless of how the rest of the world's economies will perform. International Data Corp., Framingham, Massachusetts, USA (IDC)--a respected data research firm--stated in March that the 1998 global personal computer market will grow 13 percent. The 13.4 percent 1998/97 worldwide unit growth rate represents a decline from the 1997 market, which achieved growth of 15.2 percent. The U.S. market is expected to show demand growth of 15.4 percent in 1998. Western Europe should continue robust this year with 13.8 percent growth. The outlook for Asia-Pacific continues to weaken: IDC expects shipments in 1998 to grow at a sluggish 6.9 percent. However, shipments in Japan are expected to increase 7.3 percent.

Other Key News

Russian industrial production rose 1.4 percent in February compared with the same month last year, the State Statistics Committee said in Moscow.

Germany's automobile association said in March that vehicle production climbed 8 percent in February from the year before, the latest evidence of a bright outlook for German carmakers. Total car exports increased 5 percent to 262,200 units. The light truck segment showed the fastest growth rate with output rising 16 percent to 19,000 units.

Another sign of strength from Germany: German industrial orders rose a higher-than-expected 3.3 percent in January '98 from December '97 as large domestic orders for capital goods ended four months of small declines.

The Australian government projects lower exports this year as the Asian flu depresses demand throughout the region, according to government statements in March. The official and revised economic growth forecasts economic growth down to 3.25 percent from 3.5 percent for the next 12 months because of lower exports.

New British data point to a slowing economy; this includes a drop in consumer spending growth in February and reduced housing starts

Japan's car and light truck production may remain weak for some months, experts there say. Vehicle sales are expected to slide this year to their lowest level in 10 years because the government's tight fiscal policy squeezed consumer spending. For the year ending 31 March 1998, all vehicles sales are expected to show a loss for the year of 13.1 percent. However, the outlook for the next year is for more than 7 percent growth.

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