At times this year, it has seemed that not a week passes without some new revision to the economic growth forecasts for economies in the region. Following the recent attacks in the US, and the uncertainty it is causing worldwide, the task of predicting GDP growth is proving to be even more complicated.
With that in mind, it should not come as a surprise to see that at Lehman Brothers' Asian credit conference, held in Hong Kong last week, the bank has now set out good-case and bad-case scenarios for what could happen to GDP in the coming months.
"Trying to make forecasts is hard enough, but it has been made even more difficult given the current situation," explains Robert Subbaraman, senior economist for Asia at Lehman. "Because of the uncertainties, a baseline forecast would be meaningless so we've decided to outline predictions of two different scenarios."
In the good-case scenario, the geopolitical risks will subside fairly quickly and the US response, not only to the attacks but also to its economy, will resolve matters without too much disruption to the economy.
Although Subbaraman believes that the US economy will slip into recession for the remainder of 2001, with a 1% subtraction in Q3 and 1.6% by the fourth quarter, the positive scenario sees GDP growing in excess of 4% in 2002. This will have positive knock-on effects for Asian economies.
For example, the best-case scenario sees China's economy expanding by 7% in 2002, Hong Kong's by 6%, Singapore and Korea by 5% and Malaysia 4%.
The story is not so positive for some countries in the remainder of 2001, however, with Hong Kong, Singapore and Taiwan all predicted to record negative growth. That said, China, because of its low dependence on exports and Malaysia and Indonesia, because they are net exporters of oil are deemed those best able to cope with present conditions.
The bad-case scenario ù one where war breaks out in the Middle East and there are oil price spikes, counter terrorist attacks and uncertainties causing a sharp decline in investment ù sees the US economy contracting by 2%, which in turn will have negative impacts in Europe, Japan and non-Japan Asia.
In most cases ù apart from China, Indonesia and Malaysia for the reasons mentioned above ù the differences between the good-case and bad-case scenarios are striking. In the former, Hong Kong is expected to see growth of 6% in 2002. In the latter, the economy would decline by 1.5%. The story is the same for Korea, the Philippines, Singapore, Taiwan and Thailand.
As Subbaraman is keen to stress however, these figures are not set in stone and could change again in the future. "These scenarios are two extremes and when the uncertainties become clearer, we will be able to move more in the direction of one of the scenarios," he concludes.
