Tuesday, 5 July 2005

Asian growth may moderate, high oil prices not helping

The news flow from East Asia outside China and Japan have not been very good recently.

First of all, soaring oil prices are expected to moderate growth in a region that is highly dependent on oil imports.

Indeed, today, South Korea's central bank lowered its economic growth forecast for this year to 3.8 percent from 4.0 percent, saying record high oil prices were slowing an overall economic recovery. While private consumption growth is expected to accelerate in the second half of the year, and service sector output grew in May for a third consecutive month, the government is not taking any chances. Finance and Economy Minister Han Duck-Soo has promised to increase spending on public works and would consider a further cut in sales taxes.

In Taiwan, the trade surplus has shrunk 86.6 percent in the first five months of this year, mainly because of a sharp increase in the price of imported crude oil, according to the Ministry of Economic Affairs. Meanwhile, Taiwan's composite index scores dropped two points in May from a month earlier to 18, the lowest in two years, according to the Cabinet-level Council for Economic Planning and Development, although the leading indicator index managed to edge up 0.8 percent to 105.5.

And in contrast to improvements in much of the rest of the world, Singapore's purchasing managers' index fell in June -- to 50.5 from 51.0 in May -- as did Hong Kong's.

In spite of these difficulties, fund managers remain most positive on equities in Asia ex-Japan among global equities, according to a Dow Jones Newswires survey in June.

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