World bankers gathered in Hong Kong yesterday and forecast a clouded outlook for economic growth and investment flows into Asia this year - but with the promise of a gradual increase in capital inflows in 2002. The forecasts were unveiled by Sir John Bond, chairman of the Institute of International Finance (IIF), at a press conference held to release a report on capital flows to emerging market economies. Sir John, chairman of HSBC Holdings, parent of Hong Kong's biggest bank, HSBC Corp, also revealed the IIF was working in close collaboration with banking regulators to put in place 'an early-warning smoke alarm' to pre-empt further financial crises. Research for the global association of international banks forecast a decline in aggregate growth in emerging market economies to 3.5 per cent this year from 5.7 per cent last year, and a decline in real gross domestic product growth in Asia to 5.4 per cent from 7.3 per cent last year. Driving those shrinking growth rates, it said, was a combination of factors including the slowdown in the United States economy, the resulting slowdown in demand for information technology in particular, the weakness of the Japanese yen and the stagnation of the Japanese economy. Also contributing to the slowdown, it said, was 'limited progress in bank and corporate restructuring' in the region. A notable exception to this criticism was China, and Sir John was at pains to isolate the mainland from the generally negative report on the region. 'In order to build market confidence, governments must ensure sound macro-economic policies and actively pursue structural reform,' he said. 'In this context let me say that I am very supportive of China's difficult structural reform programme. 'China is making steady progress, which over time will add fundamental strength to its - and the world's - economy.' The regional bloc likely to show the sharpest downturn in Asia, it said, was the so-called 'Asian 5' - Indonesia, South Korea, Malaysia, the Philippines and Thailand - which would see growth of only 2.6 per cent this year against 7 per cent last year. Within this bloc the biggest reverses were likely to be shown by Korea, which faced economic growth of just 2.5 per cent this year against an average of 10 per cent over the past two years; and Malaysia, which was likely to record growth this year of just 3 per cent, compared with 8.5 per cent last year. Shoring up growth in Asia, would be continued strong performances from the Indian and Chinese economies, with the second likely to grow at about 7.5 per cent this year. Dragging the emerging economies down in aggregate, noted the IIF, would be poor performances from Turkey and Argentina. 'The uncertainties in the major economies, together with the difficulties that we have seen in Argentina and Turkey, are combining to suppress private capital flows to emerging market economies,' said Sir John. 'The IIF's new forecasts point to a decline in private flows to around US$140 billion from nearly US$170 billion last year.' While recovery to a volume of close to US$200 billion was possible next year, he said, this would still be quite modest compared with pre-crisis levels, and inflows this year would be the lowest into these economies since 1992. Asia was likely to see net private capital flows slowing to below US$50 billion this year from nearly US$60 billion last year, said the IIF report. However, this could rise to US$70 billion next year. Among the hardest hit by the downturn would be Korea, the report said. It was likely to attract just US$5 billion in net capital inflows this year, compared with US$18 billion last year.
