At a press briefing in Hong Kong, Paul Mortimer-Lee, global head of market economics at BNP, affirmed that faster growth lies ahead if US economic indicators on money growth, consumer confidence and employment are anything to go by.
"We feel the US will lead the way to an improvement in the global economy, with Europe lagging behind, and Japan stuck in a deflationary snowdrift," he comments. "The worst is over in the US and the global economy could pick up surprisingly well even in the first half of the year. I don't think recovery will be monumentally fast, however, because the downturn has been fairly mild."
Given that 2001 was the year of cuts in interest rates globally – triggered by the actions of the US Federal Reserve – it might be reasonable to expect some increase in rates this year. Not so, according to Mortimer-Lee, especially when the recovery is still in its early stages.
"I dont think rates will go up this year: the next move in the Fed will probably be sideways," says Mortimer-Lee. "The corporate financing sector definitely overreached in the past, and consequently there was a sharp cutback in this last year. It could be some time before investment picks up again so I do not think the US will want to increase rates too soon."
Mortimer-Lee believes the pick-up in the US economy will be good news for everywhere else – everywhere except Japan that is. "Japan's economy looks to be in deep trouble," he asserts, echoing the thoughts of most observers. "I cannot see recovery happening there for a long time: the domestic economy looks awful. Consumer income is falling and even though prices are as well, that is no recipe for people to spend because the economy is so weak."
In terms of specific problems, Mortimer-Lee points to decay in the banking system, which has negative spin-off effects for the rest of the economy. "Domestic demand is weak because the banking system is broken," he says. "The government knows this, but is looking at external factors – US recovery and a weak Yen – to spur growth. It is looking at a policy of a weak Yen [around 150 to the US$] to get prices up, but there are problems with this.
"It is has been difficult enough for Prime Minister Koizumi to push through reforms even when his popularity was high, so it will be even more difficult when it is as low as it is now" adds Mortimer-Lee. "The important thing is to sort out the banks and it needs a lot of public expenditure to beef up the system."
As for what impact, events in the US and Japan will have on the rest of Asia, BNP Paribas has not changed its growth forecasts that it set in November. And while it might be tempting to think that the positive signs coming out of the US will have a corresponding effect in Asia, countries in the region should still heed the advice of one of Mortimer-Lee's colleagues.
Andrew Freris, chief economist for the Asia-Pacific region at BNP, repeatedly spoke last year of the need for Asian countries to look at domestic and regional circumstances as the most important driver of economic fortunes in the region. And that may be even more important in determining the region's success or failure in 2002 than what transpires in the US.
