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ASEAN aims for 4 percent economic growth

ASEAN foreign ministers have been meeting in Brunei this week
ASEAN foreign ministers have been meeting in Brunei this week  

By Geoff Hiscock
CNN Asia Business Editor

(CNN) -- Economic growth of 3.5 percent to 4.0 percent this year is the projection for the 10-member group of Asian countries known as ASEAN (Association of Southeast Asian Nations).

That would be a solid gain from last year's average of 2.85 percent.

But achieving the 2002 target will rest heavily on what happens in the economies of ASEAN's two key trading partners, the United States and Japan.

Between them, the U.S. and Japan take 40 percent of ASEAN's outside exports and supply 43 percent of its imports -- part of an annual trade flow between ASEAN and the world that is worth almost $500 billion.

With the U.S. economy dogged by sharemarket turmoil, accounting scandals and a sense of unease among consumers, and Japan's own recovery heavily dependent on its exports to the U.S., the outlook for Southeast Asia in 2002-03 is far from clear. (Full Story)

According to the latest Pacific Economic Outlook, the U.S. will probably grow by 2.5 percent this year, while Japan may show no growth at all. (Full story)

Mixed indicators

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Japanese economic indicators are mixed, despite the Koizumi government upgrading its outlook recently. While there was a spike in GDP growth in the March quarter, the June quarter could see a contraction. Unemployment is still high and industrial output declined slightly in June. (Full Story)

And recent data out of the U.S. suggests demand there for Asian exports in the second half of 2002 is easing, driven in part by the weakness of the U.S. dollar

The good news is that three of ASEAN's other main trade partners -- China, South Korea and Australia -- are among the world's fastest growing economies and should continue to provide strong trade and investment flows.

China, which says it is on track for a growth rate of about 7.5 percent this year, is the country potentially of most opportunity for ASEAN.

But in other ways it is a competitor, as a magnet for foreign direct investment, and as an alternative manufacturing location for Japanese, Korean, U.S. and European companies who may already have operations in Southeast Asia.

Free trade area with China

One of ASEAN's big goals -- reinforced at this week's meeting of foreign ministers in Brunei -- is to create a free trade area with China within 10 years.

Such an agreement would be a pivotal event for the Asian region. It would create an economic union with 1.7 billion consumers, total output of about $2 trillion and total trade of $1.23 trillion.

It would also soften the blow for ASEAN of seeing investment that it might once have expected to come its way, continue to pour into China.

ASEAN says its more immediate priority is to integrate its 10 economies even further, building on from the start of the ASEAN Free Trade Area (AFTA) in January this year.

Longer-term, also on the cards is a proposed free trade agreement with the United States, closer economic ties with Australia and New Zealand, and the possible creation of an East Asia free trade area that would include Japan and South Korea.

Much to do

The strength of any recovery in Japan will be crucial for ASEAN's economic outlook
The strength of any recovery in Japan will be crucial for ASEAN's economic outlook  

ASEAN admits it still has much to do in financial and corporate restructuring, to create the conditions for sustainable economic recovery after the 1997-98 Asian financial crisis.

"Tackling the remaining challenges from the financial crisis is our priority," the foreign ministers said in their Brunei communiqué on Tuesday.

The performance of the economies of the U.S., Japan, China and to a lesser extent, the European Union, over the next few months will help determine ASEAN's ability to hit its growth target, and thereby continue the reform process.

Another key factor is the region's currency appreciation against the U.S. dollar. Hong Kong-based Morgan Stanley analyst Andy Xie noted earlier this month this was occurring without any improvement in pricing power.

"This has not happened before and constitutes a serious threat to economic recovery," he said.

ASEAN brings together the economies of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.


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