Economies in the region continue to recover. Some concerns, however, persist. Problems are hopefully isolated ones and not contagious.
Moving into the fourth quarter of 2000, 'ex-Japan Asia', as analysts call our region, is still holding up well as a whole. Strong V-shaped economic rebounds have continued, but, as expected, at somewhat more moderate growth rates. Higher interest rates, largely mirroring the movements in the US dollar interest rate, have thankfully not had much effect on the recovery so far. The recovery has been led by rapid growth rates in exports that have been in double digits, producing, at the same time, large current account surpluses, which have allowed some replenishment and accumulation of foreign reserves. This year, the impetus to growth has spread also to domestic demand. As a result, the growth of imports has caught up, recording also double-digit growth rates and reducing somewhat the current account surpluses. But the overall balance of payments position of individual economies remained healthy and not much of a concern.
There have also been general improvements in the unemployment situation, with the exception possibly of the Philippines, and unemployment rates are generally down to low single digit levels. On this front, Hong Kong is also some kind of an exception. With the unemployment rate at a shade below 5%, the improvement seems to be less marked than in other places. This may be surprising given that that the labour market in Hong Kong has been known to be highly flexible and mobile. The reason for this exceptional phenomenon could well be a reflection of more rapid productivity gains in Hong Kong, which may be an indication that Hong Kong is more responsive to technological revolution than others. Another factor could be the restructuring that has been going on in order to cope with the forces of globalisation and more specifically in anticipation of the Mainland's accession to the WTO. Hong Kong will need to be more efficient in order to continue to play the role of an intermediary successfully and Hong Kong should develop its role as a principal in the business that will be opened up as a result of accelerating reform and liberalisation on the Mainland.
Inflation is generally not a problem, although the picture is quite a mixed one. Overall, the recent hike in oil prices poses a real threat. Furthermore, currency weakness in a few economies may in time feed through to their consumer prices. Already in Indonesia and the Philippines, inflation is running at between four and five per cent and continued weakness in their currencies, reflecting the relatively slow pace of economic growth and financial sector reform, and unfavourable political factors, may make it worse.
This mixed picture has led to a mixed bag of monetary policy responses in the region. One or two central banks have pushed interest rates significantly higher than that of the US dollar, presumably for the purpose of stabilising their currencies but obviously at some cost to the economic recovery. Yet one or two others have deliberately kept interest rates low, notwithstanding the weak currency, and ignored the inflationary consequences. These responses, although no doubt justifiable in view of domestic considerations, present areas of vulnerability in the region. Let us hope that they are isolated and, having regard to recent financial market behaviour, not contagious. These responses may also affect the availability of external credit to the markets concerned. Having enjoyed quite a substantial revival in the first half of the year, it would be a pity to see this credit dry up, particularly when domestic bank credit has continued to contract and domestic debt markets remain underdeveloped.
I am glad that, with our currency board system safeguarding the stability of our exchange rate, we are not experiencing the same magnitude of problems as some other place in the region. And with our sound economic fundamentals, we can continue on our path of economic recovery without these unhelpful distractions.
Joseph Yam
19 October 2000
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