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SCMP Reporter

Talk of economic recovery in the Asia-Pacific region is premature, with negative growth still expected this year and only a minor upturn next year, a non-government think-tank claimed in Kuala Lumpur yesterday.

 In a two-yearly report to be presented to officials at this week's Apec conference in Kuala Lumpur, the Pacific Economic Co-operation Council (PECC) said while earlier predictions of further economic catastrophe next year would be avoided, signs of a genuine turnaround were barely visible.

 The Pacific Economic Outlook (PEO) paper predicted Asia-Pacific growth to be just 0.7 per cent, down from 4.4 per cent last year.

 However, if the United States and Japan were excluded, the region would suffer negative growth of 0.1 per cent, it said.

 The PEO covers 23 economies in East Asia, Australasia, North and Latin America - including 17 of Apec's 21 members.

 Its cautious tone is in stark contrast to recent suggestions by economic analysts in the region that some beleaguered Asian economies had bottomed out and were starting to see signs of a revival.

 'Seven economies are experiencing significant contractions and four are near zero,' PECC said.

 'Consumer price inflation has risen as well, from 3.4 per cent to 7.2 per cent forecast for 1998.'  It predicted that while growth in the United States would continue over the next two years, it would slow - further hampering recovery - as the impact of the Asian crisis finally took hold.

 PECC's outlook for the mainland was more encouraging because of its focus on domestic growth rather than relying on expanding its export position.

 As such, the mainland was less affected by the downturn and could possibly look forward to accelerated growth over next year and 2000, despite the setbacks this year.

 PECC outlined four main risks that it said could 'jeopardise even the hint of recovery', with the fate of the region resting largely on Japan's willingness to revitalise its economy through massive restructuring of the country's banking and financial systems.

 'The most serious risk is that Japan does not get its act together to achieve stagnation - the best that can be hoped for - but instead continues to spiral downward,' the report said.

 Financial market instability stemming from global capital market distress and further declines in commodity prices were also concerns that could set back a turnaround.

 A return to protectionism, which was most likely to occur in the US, also remained a threat in the Asia-Pacific, said PECC.

 'If unemployment should rise sharply, and the trade accounts continue to deteriorate as forecast, then it would not be unusual for many affected countries to seek legislated relief from their trade problems,' the council said.

 In a separate report, PECC reiterated the importance of domestic savings to sustain long-term growth in the region.

 Noting a downward trend in private saving in Apec's more developed economies since the 1970s, it said the currency crises that have plagued Asian countries over the past 18 months were the result of an over-dependence on foreign money at the expense of domestic savings.

 The report also noted a direct positive association between economic growth and saving, but said that savings rates tended to level off as incomes rose.

 'The Asian [economies] may be an example of this, and they may not continue to be 'super-savers' for much longer,' it said.



Two-yearly report to Apec says signs of genuine turnaround barely visible