Slower Growth in Asia Pacific Dominates News for Moulders

What should injection moulders the world over look for as they assesspotential for growth in 1998? Based on a variety of forecasts, it appearsthat North America will see continued and very solid growth of about 3percent/year. Europe will see little actual growth with average productionincreases for moulders estimated at 1.3 percent. South America and someof the more advanced countries in the Arab world as well as Africa willsee acceptable growth rates of 3 to 4 percent.

But the big change is in the Pacific. Various factors have dramaticallyreduced actual growth expectations for injection moulders in most of theAsean nations. The principally affected countries are Malaysia, Singapore,the Philippines, Thailand, and Indonesia.

What caused this sudden slowdown? A variety of factors is being blamed.The central factor is a sharp drop in the currency values of these countriesthat suddenly seemed to show that the economies of these "tigers"was in a somewhat questionable state.

But what does slowdown mean for moulders? First of all, it means thatthere still will be growth, but these increases will hover at the 5 to6 percent range rather than the two-digit increases we have become accustomedto for the past decade. China remains the exception--a country that isfar lower on the development curve. With almost unlimited resources forlow-cost labour and an enormous interior market demanding consumer goods,China will return growth rates for moulders well in excess of 10 percentfor 1998 and the years beyond.

Note that almost all sources seem to predict a relatively solid year.We confirmed this with sources among resin producers and machinery buildersin various countries. All of their internal projections show solid growthahead. Some, it must be noted, say that shipments of supplies for injectionmoulding facilities into countries such as Malaysia and Thailand have "droppedsharply and suddenly." The only exception to the generally good outlookis a detailed United Nations report discussed on the following pages.

In late September, the International Monetary Fund, Washington, D.C.,USA, (IMF) scaled back its 1998 growth forecasts for Japan, Southeast Asia,and most of the developing world, but predicted nonetheless that the globaleconomy is about to enjoy what could be its best five-year stretch in thepast 25 years.

"There are reasons to believe that the current expansion can besustained, possibly into the next decade," the IMF wrote in the newWorld Economic Outlook. It foresees global growth of about 4.5 percenta year over the next five years, compared with an average of 3.75 percentover the past quarter of a century.

The IMF sees growth in Germany of 2.3 percent this year and 2.8 percentin 1998. Additionally, it sees growth in France of 2.2 percent this yearand 2.3 percent in 1998. However, the IMF reduced its forecast for Japanby a full percentage point for both 1997 and 1998.

This means for 1997 just 1 percent growth down from 3.5 percent growthin 1996; and for 1998, the IMF projects just 2 to 2.5 percent. But, statedthe IMF, continued fallout from Asia Pacific's currency crisis could meanslower growth.

The IMF projection sees Thailand's economy growing only 2.5 percentthis year, substantially slower than in recent years. Asia, as a whole,is still projected to be the fastest-growing part of the developing world,expanding by 7.6 percent this year, more rapidly than the average for the1980s and early 1990s. The news is good for moulders with the U.S. marketas a target. IMF predicts that the U.S. economy, which grew 2.8 percentin 1996, will expand by an inflation-adjusted 3.7 percent this year and2.6 percent next year.

IMF backs up these projections by claiming that it sees few signs ofthe tensions and imbalances that usually precede downturns. Inflation issubdued. IMF also said that unemployment and unused industrial capacityin continental Europe and Japan have kept the world economy from overheatingdespite strong growth in the U.S. and some smaller industrialized countries.

Gloom from the United Nations?

Since the beginning of the decade, world output growth averaged about2 percent annually, compared with 3 percent during the 1980s, said a newreport by the U.N. Conference on Trade and Development (UNCTAD). This waslargely due to the slowdown in industrialized countries, where economicexpansion averaged a disappointing 1.8 percent this decade. This comparedwith 4.8 percent per year in the developing world, or 3.9 percent withoutbooming China.

Unlike the positive outlooks presented by the World Bank and the IMF,UNCTAD stated, "such a relatively modest rate can solve neither theNorth's [developed world] labour market problems nor the South's povertyproblems, nor will it allow for a narrowing of the North-South divide.Evidence is mounting that slow growth and rising inequalities are becomingmore permanent features."

Rather than the "big bang" approach to trade liberalizationurged by the World Trade Organization, UNCTAD supports a more gradual processtailored to individual economies.

The Impact of the Currency Problems

The very sudden and steep devaluations of key Asian currencies has casta long shadow. Plastics processors in such countries as Singapore and Malaysiaare hunting for ways to restore their competitive edge with other suchexporting countries as China. In Malaysia, for instance, processors haveasked--without success at press time--for sharply lowered import tariffson items such as resin and machinery as well as other government benefits.Similar measures are under discussion in Indonesia and Thailand.

Note that in these countries average resin prices have jumped 10 to15 percent since the currency value changes. And processors were forcedin many countries to raise their prices sharply to be able to service largecapital investments typically denominated in U.S. dollars.

Other News

Canada: Good news for the North American continent: Canada'seconomy is closely tracking the U.S. economy, growing overall by 4.9 percentin the second quarter, much faster than the U.S. economy at that time.This is also reflected in very healthy increases of orders to injectionmoulders operating in Canada. Major beneficiaries appear to be electricaland electronics and automotive.

Mexico: To the South, Mexico is also growing by a very rapid8.8 percent rate in the second quarter. Projections are that the wholeof 1997 will result in a very broad advance of 6.6 percent. This meansnot only increased output at Mexican injection plants but improved exportopportunities for moulders in the United States, Canada, and elsewhere.

Editor's note: The next issue of IMI (January/February 1998)will have a worldwide forecast for moulders based on the three largestmarkets.