Bank warns of Asia's hard landing

Japanese business investment and exports have stalled

In this story: Australian situation 'remains fragile' In line with UN forecast for Japan Economy contracted in December quarter RELATED SITES

By CNN's Geoff Hiscock
Asia business editor

SYDNEY, Australia -- Japan and the rest of Asia are in for a hard economic landing, with the U.S. stalled at best, according to a key survey by Australia's biggest bank.

The National Australia Bank's March quarterly business survey, released Tuesday, says the global outlook has deteriorated significantly in recent months.

It says Europe is the only region likely to outperform, and that will depend critically on the U.S. resuming growth in the second half of this year.

Australian situation 'remains fragile'

The NAB survey says Australian business confidence remains at low levels, but with the possibility of it bottoming at current levels. It stresses that the Australian situation "remains fragile".

The bank says non-Japan Asia is slowing sharply, largely because of the slowing U.S. demand for high-tech exports. Industrial production, excluding China, has fallen dramatically.

"This implies growth in Asia [ex China] of only around 2.5 percent this year," it says.

Japan is also looking increasingly fragile, with the main drivers of growth -- business investment and exports -- having stalled, and policy options limited.

"For 2001, we expect [Japanese] growth of marginally less than 1 percent,'' NAB chief economist Alan Oster said.

In line with UN forecast for Japan

This is similar to a forecast last week by the United Nations' global economic outlook, which predicted Japanese growth this year of less than 1 percent. But it is more optimistic than the World Bank's forecast of 0.6 percent, contained in its global development finance report released on April 10 in Washington.

The NAB says that it sees the now-stalled U.S. economy resuming moderate growth in late 2001, with a further interest rate cut likely in mid-May and a stimulus from the budget.

"Clearly the Fed is in an aggressive easing phase. We expect another 50 points reduction at the next meeting," it says. "Budgetary policy will also be extremely stimulatory."

The bank says it does not expect the Reserve Bank of Australia -- which has already cut interest rates three times this year -- to move before the U.S. Federal Reserve meets next month. It sees the RBA cutting by a quarter of a percentage point in June, with this likely to be the last cut in the current easing cycle.

Economy contracted in December quarter

Australia had its first quarter of economic contraction in 10 years in the December 2000 quarter, with gross domestic product falling by 0.6 percent. This cut the nation's annual growth rate to just 2.1 percent last year.

If the March 2001 quarter also were to show a contraction it would meet the technical definition of a recession.

While the NAB says Australia is not in a recession and 2002 could "surprise on the upside", a separate survey by credit information company Dun & Bradstreet says a slump in March has reversed the "small rise in expectations" for the June quarter that it recorded in January and February.

"Sales expectations have now entered negative territory for the first time since the 1990 recession," it said.

Dun & Bradstreet Australia and New Zealand managing director Christine Christian said the question of whether Australia was now in a recession was not really the issue.

"The stark reality is that many businesses are suffering and are likely to continue doing so for some time to come," she said.

National Australia Bank
Dun & Bradstreet Australia & NZ
Reserve Bank of Australia

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