Asia to emerge as driver of growth


Walker moved his home to Hong Kong two weeks ago because he feels prospects are better in Asia

By Alex Frew McMillan

HONG KONG, China (CNN) -- Asia is about to take over as the driver of world growth, a leading economist said Wednesday, thanks to brimming confidence and consumption.

While a muted U.S. recovery will continue through 2003, it is Asia's strong prospects that will attract overseas capital and investment, Jim Walker, chief economist for investment bank CLSA, told a press briefing.

Walker said it will be at least another seven years before Asia slips back into an economic downturn.

"For me to say that Asia ex-Japan is about to take over as the source of global growth is quite unusual," Walker said, adding he was bearish for much of the 1990s.

"Can Asia be the driver of growth? Yes."

Moved back to Hong Kong

Walker moved back to Hong Kong from Edinburgh, Scotland, two weeks ago -- partly, he says, because of the optimism he feels over business prospects in Asia.


"Confidence is a great thing because it is really what drives economies," Walker says. It is kicking in around Asia

Another overriding factor was his wish for his children, aged 13 and 10, to learn Chinese before they get too old. China's rise as an economic force "is not going to stop," he said.

He feels growth prospects are best in South Korea, China and India. But increased privatization, reduced government control of the private sector and strong consumer demand will fire much of the region.

"Confidence is a great thing because it is really what drives economies," Walker said. "And you can see that happening in Korea, starting to happen in Thailand and Malaysia and very definitely happening in China."

Korea, China, India lead the way

Walker's bank predicts that China will set a pace of 5 to 6 percent growth this year and next. India may even outdo that, with 5.8 percent rise in GDP this year and 6.2 percent in 2003.

Those two nations often grab the growth headlines. BIS Shrapnel said earlier this month they will lead the way for the next 10 years (full story).


Prospects are not as good in Hong Kong (above), the Philippines, Singapore and Taiwan, based on credit and consumption

But it is South Korea that is leading the way, thanks to bank reforms, plentiful monetary supply and healthy domestic demand.

Walker predicts Korea will lock in growth of 7.3 percent in 2002 and 7.8 percent in 2003.

By contrast, CLSA expects the United States will continue to grow at 2 to 3 percent over the next two years, with Europe closer to 2 percent.

The bank forecasts that Japan will slip back into recession and shrinking GDP by the end of 2002.

The International Monetary Fund recently warned Japan's recovery may be brief (full story).

That throws the rest of Asia into relief. Improved credit and strong consumption is likely to lead to outsize gains for most of the region, Walker believes.

He says that will lure overseas investment to Asian stocks and both corporate and government bonds.

Deficits expected

Economies such as Malaysia, Singapore and Thailand are set to generate GDP growth of more than 4 percent in 2002 and 2003, according to CLSA forecasts.

That will lure direct investment. Capital imports will likely begin to rise through most of the region as a result. The Philippines is already posting a trade deficit, unusual in export-intensive Asia.

Walker expects most if not all Asian economies to follow suit. "Trade deficits, treat them with joy," he observed.

Though trade deficits are often taken as a sign of falling exports, Walker feels that at this point they will stem from international bullishness in investing in Asia.

Now big enough to lead the way

In the past, Asia ex-Japan was not big enough to lead the world's economy. But Walker believes that it now is.

Asia's official gross domestic product, excluding Japan, totals around $3 trillion. That's only around 30 percent the size of the U.S. economy and only 75 percent of Japan's.

But Walker said the true figure is between $4.5 trillion and $5 trillion. He credits the discrepancy to the huge underground economy operating off the tax radar screen in many Asian nations.

Growth is not uniform in Asia, however. Based on credit and consumption trends, CLSA said the "omens" are negative in Hong Kong, the Philippines, Singapore and Taiwan.