Naomi Collett reports on the knock-on effects of the Asian Tiger economies crisis.
Fund managers investing in the Middle East must have breathed a collective sigh of relief as pandemonium sweeping through the Asian financial markets bypassed their own newly emerging markets.
Triggered in mid-1997 by a Thai company reneging on debt, the crisis swept through the so-called Asian tigers before turning northwards towards Japan and threatening to engulf China in its wake. Throughout the last few months of 1997, fears of a global meltdown grew as Europe fretted about safeguarding jobs created by Asian investment and commentators shaved percentage points off expected world growth. In such a highly charged climate, it seemed inconceivable that the Middle East could escape the turbulence.
But as the dust slowly settles, industry views about the effect on Middle East growth rates appear to be mixed. On the one hand, it is generally agreed that the region stands to gain from the Asian economies' massively devalued currencies which will make locally produced exports more attractive and imports into the Middle East cheaper. Balanced against this is the possibility of a prolonged recession in Asia, in particular Japan, leading to a fall in demand for Middle East oil. Gulf crude is predominantly sold to Asian markets, with Japan accounting for the bulk of demand. Already soft oil prices have been further undermined by the Asian crisis, resulting in prices dropping below $15 a barrel, their lowest level for four years (see page 38).
The possibility of a prolonged Asian slump could cause sleepless nights for many regional governments; despite attempts to diversify into manufacturing or services, oil remains the driving force behind most of the region's economies and the oil price the true barometer of the region's growth prospects. But with a general consensus amongst industry analysts that oil prices are set to follow an upward trajectory from their current lows, the effects of the crisis may not be as great as initially feared. Certainly, the IMF has seen fit to revise downwards only very modestly its growth prospects for the Middle East in 1998, from 4.2 per cent to 3.6 per cent.
Whilst it is still not yet clear whether the region's real economy will feel the pinch of falling Asian demand, the jury is also still out on the effects on Middle Eastern financial markets. Some analysts see the impact as liable to be minimal.
According to the IMF's World...