News: Analysis & Commentary: The Global Economy
Happy Days Again for the Global Economy? Not Quite
So far, Asia's recovery isn't helping American exports much
On the steamy streets of Bangkok, where Asia's economic crisis began, something is happening: People are heading into stores again. In July alone, retail sales were up 20% over last year. "The government is right on track," glows Suthichart Chirathivat, chief executive of Central Retail Corp., Thailand's major department-store group. He thinks rejuvenated Thai consumers could push retail sales growth up 15% this year.
That's good news for U.S. exporters. After two years of severe economic woes, Asian economies are clearly on the upswing. A stronger Japan is expected to help lift the International Monetary Fund's estimates of 1999 global economic growth, due out later this month. Many Asian stock markets are soaring, its key currencies have stabilized, and, more important, its citizens are starting to buy again. While that hasn't yet spurred a rush to snap up U.S. goods, exporters hope the urge to buy American picks up by the end of the year.
The rebound can't come a moment too soon. The U.S. current account deficit soared 17.5% in the second quarter, to a record $80.7 billion. That has put more pressure on the U.S. dollar, which has struggled as the Japanese yen headed toward a three-year high (page 45). While the dollar's downward drift might fuel inflation at home, it could help U.S. exporters. First Call Corp. sees signs that consumer sales could start to accelerate by the end of the year. It predicts 6% earnings growth for consumer staple companies in the Standard & Poor's 500-stock index this quarter, with a 23% surge in the fourth quarter. A good chunk of that increase is expected to come from Asian sales.BOUNCING BACK. American high-tech companies have already seen Asian sales rebound as businesses and consumers in recovering economies race to join the Internet Age. Oracle Corp. reported a 47% rise in Asian revenues in the second quarter, twice its growth in the rest of the world. And Microsoft Corp. is boasting that its Asian sales are 40% higher than before the crisis. Hewlett-Packard Co. and Dell Computer Corp. are also reporting big jumps. "We're seeing consumer confidence come back," says Ron Goh, vice-president of Dell Computer Asia in Singapore.
Prices of commodities such as paper, metals and oil are up, thanks in part to higher Asian demand. "Modest (growth) would be an accurate way to put it," says Paul T. Murphy, a spokesman for Caltex, a Chevron Corp./Texaco Inc. joint venture which operates more than 6,000 service stations across Asia. The tide is also turning for construction and oil-field equipment suppliers.
When Asian economies collapsed in July, 1997, the sales of U.S. exporters of consumer staples went tumbling with them. Everyone from women hawking Avon Products Inc. to Coca-Cola Co. distributors saw profits wither amid plunging demand. "These guys seemed to be sensitive sooner than everyone else," says Charles L. Hill, First Call's director of research in Boston.
Unfortunately, they don't seem to be nearly as quick on the rebound. Ford Motor Co., for example, sold just 3,400 cars in Thailand in the first seven months of this year. "We're still a long way from our pre-crisis volumes," says Jerry Kania, president of Ford's Southeast Asian operations in Bangkok.
Even Coke is feeling guardedly upbeat. It has watched sales measured by case volume rise 6% in South Korea and close to 15% in Indonesia during the first six months of this year. "We expect improvement to be U-shaped, not V-shaped," says Douglas N. Daft, president of Coke's Middle and Far East Group. Gillette Co., meanwhile, says Asian sales rose 11% in the first quarter and 14% in the second--with even higher gains expected in the second half.
But the Asian hunger for prestige items and brand names that was so evident before the crisis has yet to resurface. One reason is that the dollar is still strong against local currencies outside Japan. More important, some analysts also suspect the crisis may have prompted a permanent shift in consumption patterns. Kuala Lumpur engineer How Poh Seng, for example, now relaxes after work by drinking a local beer from the corner store instead of sipping a foreign brew at a bar. "Everybody's style of living is to spend less," he says. Companies clearly notice that trend. "What we've seen is a little shift away from corporate entertaining in expensive hostess bars to more people paying out of their own pocket," laments Stuart Beck, managing director of Asia for Brown-Forman Corp., a liquor exporter.
Bottom line: U.S. companies may have to wait awhile for Far East sales to reach pre-crisis levels. But at least they have stopped falling.By Diane Brady in Greenwich, Conn., with Jonathan Moore in Taipei and Bureau ReportsReturn to top