Asian economies fall on black days

Fujitsu is just one of many Japanese technology firms feeling the pinch of a global slowdown in demand

By CNN's Nic Hopkins in Hong Kong

HONG KONG, China -- Asia's export economies are in the middle of a slump described as the worst in the past three decades.

Demand from European, Japanese and U.S. customers has plunged, pushing Asia's export and technology-driven economies to the brink of or even into recession.

Last week Taiwan announced a year-on-year contraction of 2.35 percent in its economy, marking the worst quarterly drop in 26 years for the island.

Earlier, Japan escaped the definition of a recession - two consecutive quarters of economic contraction - on a technicality. But its economy is in dire trouble thanks mostly to domestic problems, and its share prices are plumbing 16-year lows.

Singapore is in recession, while Malaysia and the Philippines are expected to post significantly weaker growth in 2001 compared with the previous year.

'Absolutely horrendous'

"Exports in the second half of this year are a write-off. It looks absolutely horrendous, probably the worst six months in the export market for 30 years," says Singapore-based Credit Suisse First Boston economist P.K. Basu.

A sharp economic slowdown in Europe and the U.S. is what is causing so many technology companies in Asia to scale back their work forces.

Fujitsu on Monday announced the largest redundancy plan to date, with plans to cut its payroll by 16,400 employees.

Like its Japanese competitors, Fujitsu has been hard hit by the global downturn in sales of memory chips and other electronics components.

Rival NEC Corp. has promised to slash 4,000 jobs by next March in a similar cost-cutting move.

As bad as recession

Economists say growth of around 2 percent in such traditionally high-growth markets is practically the same as a recession.

"The economies hurting the most are those that have a high reliance on exports or those that have large tech industries, with the exception of Japan, where the problems are mostly domestic," said HSBC economist Don Hanna.

"If you put zero percent growth as the threshold for recession, it will be hard for some of these economies to fall to that."

"But if you define it as resources being unused relative to the opportunity, then the entire region is suffering."

U.S. central bank chairman Alan Greenspan says the world's largest economy is skirting close to recession

"In an economy such as Malaysia there is a tremendous amount of resources that are not being used. It defies the traditional definition of a recession, but growth of below 2 percent is very, very rare," Hanna told CNN.

Some growth

The economies of China, India and Indonesia, which cumulatively account for more than two-thirds of the Asia-Pacific economy, are outpacing the region thanks largely to robust domestic growth.

Australia is also bucking the broader trend. Economists expect it to record growth of more than 3 percent in 2001.

But the prognosis remains bleak in the short-term.

"With global trade screeching to such a standstill, so, too, should the external demand contributions of most major economies around the world," said New York-based Morgan Stanley economist Stephen Roach.

"Global trade is an increasingly large component of the world economy -- now accounting for close to 25 percent of global GDP. So when world trade hits the wall, so should the broader measures of global output."

"That underscores the possibility of yet another shoe to fall in world growth -- all the more reason to stress the protracted nature of this global downturn."

Downside risks

Roach said risks remain very much on the downside for growth forecasts in non-Japan Asia in 2001 and 2002.

"The same can be said for Japan, especially in light of what our Japan team estimates was a one percent decline, quarter on quarter, in real GDP in the second quarter of 2001," he said. But as with all previous economic cycles, the latest downturn will end, and economists say there is evidence an upswing will arrive early in 2002.

Importantly, despite recent job losses that might suggest otherwise, the United States is not at crisis point, many experts say.

Consumer demand in the world's largest economy continues to beat expectations, pushing retail sales to a better than forecast result last week. Unemployment claims were also lower than expected for the June quarter.

"I think we'll probably begin to see a modest turnaround in exports towards the end of the first quarter of 2002, and I would expect that next year will bring a fairly powerful rebound in exports," says Basu.