sooner?
Asia to slow Calif. economy ''dramatically'' - report
LOS ANGELES, Sept 11 (Reuters) - Asia's financial crisis is already hurting California's economy and will cause a dramatic slowdown in the state's economic growth by early 1999, according to a forecast report released Friday. The study by the Milken Institute, a non-profit think-tank chaired by former junk bond king Michael Milken, said Silicon Valley could fall into a recession by early next year because of its high dependence on technology exports to Asia.
The study looked at three scenarios in trying to assess the full effects of the Asian crisis on California. Based on the institute's research, the two more severe scenarios -- the ''consensus'' and ''pessimistic'' scenarios -- were thought to be the most likely outcomes.
The consensus approach calls for more severe recessions to occur in countries bailed out by the International Monetary Fund and adds a few more countries to the recession lineup. The pessimistic scenario considers what would happen if China were to devalue its currency, the yuan. Specifically, this scenario calls for severe economic contractions throughout Asia.
The study said that, if the consensus scenario were to come true, California's gross state product (GSP) growth rate would drop a full percentage point to 2.4 percent in 1999 as a result of declining exports to Asia. If the pessimistic scenario were to come about, GSP growth would drop to 2 percent in 1999 and 1.2 percent by 2000. The state's exports to Asia would shrink 17.2 percent in 1999, 14 percent in 2000 and 2.9 percent in 2001.
Northern California would be hit harder than the southern part of the state in either of the two scenarios, mostly because of the large concentration of high-tech goods that Northern California exports to Asia. ''(Silicon Valley) would go into a recession if the pessimistic scenario becomes reality...and events are moving us in that direction,'' Ross DeVol, the study's author, said in a statement. DeVol noted that goods from four high-tech categories -- electronic and electrical supplies, industrial machinery and computers, transportation equipment and instruments and related products -- accounted for 75 percent of the state's total exports to Asia in 1997.
Citing data released by state agencies earlier this year, the study said Asia's economic woes had already washed ashore in California. In the second quarter of 1998, California exports of manufactured goods fell for the first time since the early 1990s. Exports to Japan and South Korea dropped 18 percent and 38.7 percent, respectively, compared to the second quarter 1997. |
