While TI is worried about Japan, I'm beginning to worry about the US.
The yield curve is now inverted from the fed funds rate at the front end to the 10 year treasury at 5.415. While the inverted curve was not created by fed tightning, it does portend very slow us economic growth. Incidently, while I think it would be prudent for the Fed to ease, they probably won't.
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TI Economist Worries About Japan
(01/06/98; 10:19 a.m. EST)
By J. Robert Lineback, Semiconductor Business News
While South Korea's financial crisis has grabbed headlines in recent weeks, chip makers and their capital equipment suppliers should pay close attention to events in Japan, which have the potential of triggering recessions in the United States and Europe, warned the chief economist of Texas Instruments Monday during an executive conference in Pebble Beach, Calif.
By far, the biggest risk to industry growth forecasts in 1998 is that Japan could pull the United States and Europe into recessions, said Vladi Catto, TI's vice president and chief economist, during a presentation before the Industry Strategy Symposium hosted by the Semiconductor Equipment and Materials International (SEMI) trade group. That risk could be averted if the Japanese government acts decisively to simulate its ailing economy with tax cuts and other moves aimed at ending country's persistent recession, Catto added.
Catto cautioned that a potential trade war could erupt between Japan and other regions -- especially the United States and Europe -- if the value of the yen slips to 150 to 180 per $1. A weaker yen would make Japanese products much cheaper in U.S. and European markets, undermining local suppliers.
The TI economist predicted there was a 25 percent risk factor that the U.S. economy could be negatively impacted by Japan's problems. Overall, Japan's gross domestic product (GDP) will grow by only 0.9 percent in 1998 after increasing an anemic 0.4 percent in 1997, Catto said.
Because TI was in a "quiet period" prior to releasing its 1997 financial results later this month, Catto would not release his specific semiconductor forecast at the SEMI conference. However, he hinted that the outlook for chip market growth was generally higher than it was in 1997, when TI estimated that industry revenues increased by only 5 percent, based sales in U.S. dollars, and about 8 percent, based on local currencies.
Catto said Asia -- battered by currency devaluations and economic turmoil -- still looks like a bright spot for growth in 1998 for three reasons. First, he said, China has avoided the brunt of the region's economic crisis, which has hit hard in Korea, Thailand, Malaysia, and Indonesia. Second, Catto said, the currency devaluations "have established the basis for the recovery [making the region more competitive in costs], assuming there won't be a recession in the United States." And third, he added, the fundamentals are still in place for growth in the Asia-Pacific region -- namely high savings rates, open markets, emphasis on education, and entrepreneurial cultures.
Even with the economic crisis swirling around the region, Asia's GDP growth is expected to be at 6.0 percent in 1998, more than twice that of North America and Europe, Catto said. |
