Asian economies ‘resilient’ despite global economic turmoil - RAM economist

Despite the prevailing global economic turmoil most of the Asian economies are likely to be resilient due to strong domestic demand and ample liquidity, the group chief economist of the Rating Agency Malaysia Berhad (RAM) Dr. Yeah Leng said.

Dr. Leng was addressing the media at the launch of RAM’s Economic Outlook Sri Lanka - 2008, in Colombo last week. “According to the IMF’s growth forecast for 2008, US and Europe economies are likely to slow down more than expected.

Most of the Asian economies, however, are bracing to absorb the global slow down with some moderation in growth, the degree of which will vary with their exposure to the international markets and resilience of domestic demand”, he said.

Dr. Leng said that the US sub-prime mortgage crisis and its accompanying financial market turmoil, global liquidity tightening and credit risk re-pricing, slow down in the advanced economies, escalation of crude oil and commodity prices are affecting the global economy in 2008.

“Despite these adverse developments, Sri Lanka’s GDP growth is expected to moderate to 5.8% in 2008 and thereafter improve slightly to 6.1% in 2009.

This would be in tandem with the anticipated easing in world food and energy prices as well as greater awareness and coordination among countries in tackling excessive speculation in the international commodity markets”, Dr. Leng said.

The report said that in the first quarter of 2008 Sri Lank’s industrial production index went up by 6.3% indicating the resilient domestic and export demand.

However, key industries such as food and beverage and textile and apparel industries expanded more slowly by 0.1-0.3% in line with more moderate economic growth in 2008.

Exports of major agricultural and primary commodities remained strong in the first quarter.

The envisaged growth in the agricultural sector is 3.6% in 2008 and 4.3% in 2009.

The manufacturing sector will grow at 5.7% in 2008 and 5.4% in 2009.

The consumer industry may be hit by tight credit conditions and expectations of mounting inflation, the report said.

Dr. Leng expects further tightening of the monetary policy by the Central Bank and added that interest rates will be increased by 75 percentage points in the second half of 2008, premised on the need to further curb domestic demand and keep inflation at bay. Sri Lanka’s rupee depreciation will continue and in 2008 the rupee will depreciate by 1-3%, a slower pace compared to 2006 and 2007.

This together with the Central Bank’s current growth target of 15% for reserves, should sustain economic growth and stave off a wage-price inflation spiral, Dr. Leng said.

GW