News Release:20030508

Asian Economic Outlook 2003-2004
2nd Quarter Report

May 8, 2003
Nomura Research Institute, Ltd.

Regional Overview

With the fighting among Iraq, US and UK almost coming to an end, the risk that Asian economy would be affected by the war has become little. On the other hand, attention has been focused on impacts arising from the problem of SARS. In addition to the negative effects such as the drop in tourists and the sluggish consumer demand, there are worries that it will force down the operation of export companies. As things stand, SARS is the main variable and our forecasts will be subject to revision as and when the situation becomes more clear.

South Korea

Business confidence continues to worsen. At this point, SARS' temporary impact towards tourism and private consumption is trivial and we can expect a positive effect of the drop in crude oil price boosting the trade income. The bond market had been confused by problems of the credit cards and the failure of SK Global. Its effects on the directions of corporate reforms are to be watched.

Taiwan

SARS poses a serious blow towards tourism related industries which leads to a further drop in business confidence. However, as the number of infected cases in Taiwan is few, we expect that the problem will be solved at a comparatively early stage. We think the negative impact towards 2003 GDP growth remains at around 0.1%.

Hong Kong

SARS' impact on tourist receipts, private consumption and service exports is estimated to be significant. Thus, we revise down our 2003 real GDP growth forecast from 3.2% to 1.5%.

China

We revise our 2003 real GDP growth forecast from 7.5% to 7.8%. This is because the growth rate of 1Q03 was stronger than expected, despite we expect there would be negative impact arising from SARS.

ASEAN

Singapor:	Taking into account the new data and building in the expect effects of SARS, we revise our house 2003 GDP forecast to growth of 2.5% y-y from 3.5%. This is our base case, the lower figure building in lower tourist arrivals and the reluctance of consumers to spend (or more properly go shopping) amid an unsettling environment. We expect the exports will rise in 2H03 although the private consumption should remain sluggish reflecting the expected rise in unemployment rate.

Malaysia:	Economic effect of SARS appeared to be most significant in the tourism sector as the gross travel-related income amounts to 9.0% of GDP. We expect the economy in 1H03 to slow down to 3.5% y-y before it recovers to 5.2% y-y in 2H03 as we forecast the pick-up in global electronics demand from 2H03. The fiscal policy will continue to play a large role in 2003 as we forecast the contribution of public spending to GDP growth rate as 2.1pp with additional fiscal measures.

Thailand:	We revise down our 2003 growth forecast to 4.3% to reflect the drop in the number of tourists due to the problem of SARS. In the later half of the 2003 when we expect the economic effects of SARS disappear, both the investment and private consumption will regain strength in 2H03 reflecting the strong economic fundamentals. Strong FDI in the automobile sector will give impetus to the investment and moderately strengthen the exchange rate of baths against USD.

Indonesia:	We see the additional SARS impact will be limited as we estimated a reduction in the number of tourists for 2003 by as much as 20% y-y following the outbreak of the terrorist incident in Bali in 2002. As the next general election is announced to be held on 5 April 2004, the political uncertainty is likely to rise which is expected to cause some depreciation of rupiah.

The Philippines:	We revise our 2003 growth forecast from 3.8% to 3.7% due to SARS incident as we already revised the number of visitors to the Philippines downward in our previous forecast. As we expected, peso has appreciated recently after the substantial fall during the first quarter. We now forecast that the peso will stabilize around the current level toward the year-end.

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Inquires to: Economic Research Department, Nomura Research Institute
Telephone. 81-3-5255-1800

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