Outlook still bleak but lower rates give hope for recovery

PUBLISHED : Wednesday, 21 October, 1998, 12:00am
UPDATED : Wednesday, 21 October, 1998, 12:00am

The economic outlook for Asia will remain bleak well into next year but hope for the region will appear after that, according to commentators Thomson Global Markets.

Chief economist Nancy Kimelman yesterday also warned there was a danger of the contagion spreading in a more serious way to Russia and Latin America than initially anticipated.

Despite the continuing gloom, the US Federal Reserve's interest-rate cuts had changed perceptions from completely negative to some hope of recovery, she said.

Thomson also believes a further two cuts are possible before the end of the year.

Senior Asia-Pacific analyst George Worthington said the Fed's actions had also eased pressure on Beijing to devalue the yuan.

'My feeling there is that they will hold the line at least until the middle of next year,' Mr Worthington, said after the launch of the renamed Thomson Global Markets, formerly known as Technical Data.

'If regional currencies have demonstrated that they have sustained stabilisation, then there would be a greater ability for China to devalue the [yuan] without causing havoc for the rest of the region.' It was important that such action was broadly announced and executed in a controlled manner before it was taken, Mr Worthington said.

'If they came out with an overnight drop of 30-40 per cent devaluation, that would not be good for the rest of the region.' Mr Worthington also warned that despite the latest round of measures aimed at bailing out Japan's banking and finance sector, the country's economy still had a long way to go to recovery.

He said there was no fundamental reason for the yen's recent strength because there was still a feeling that Japanese politicians were pretending the problems were not that serious.

The rescue measures also continued to rely on troubled banks making the decision to shut themselves down, rather than being ordered to do so, he said.