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Friday, 14 September, 2001, 15:03 GMT 16:03 UK
Asia fears economic fallout
Share prices in Tokyo edged up 0.1 percent with the Nikkei 225 average
Tokyo's main share index rose back above the key 10,000 point mark
By the BBC's business reporter, Bridget Fallon from Singapore

Following the terrible terrorist attacks in America, there is now a great deal of unease in Asia about the future of the US economy.

Asian investors are no longer asking if America will tip into a recession but how deep that slump will be.

Before the attacks, many people in Asia believed that America had seen the worst of the downturn and that US consumers would be able to pull the economy through.

It was believed that the manufacturing recession had hit bottom.

The Federal Reserve's rate cuts, the prospect of tax rebates and the prospect of Christmas were all expected to help keep US consumers shopping.

The only real argument here was whether the US would pick up before the end of this year, or whether it would be early 2002 before we saw an end to the slowdown.

Now there are very real fears about the US.

Knock-on effects

The implications of a US recession for Asia are huge.

Traders on the Hong Kong stock market
Traders face yet more financial turbulence

Asia is worried on two main fronts.

First, on the corporate level, the effects on Asian growth would be astronomical.

The US is the biggest market for many Asian companies, which are already suffering due to the current economic slowdown there.

Singapore which depends on hi-tech exports is already in a recession.

Last month Taiwan suffered its most dismal trade performance on record with exports falling 28% compared with the same time last year.

The fall is the steepest in more than 25 years.

On Friday both these markets fell heavily.

In Hong Kong, the Hang Seng shares index is down 8% since news of the attacks broke.

In Japan, although the Nikkei stock index ended the week higher, shares in Toyota fell sharply - the firm sells more cars in America than it does in Japan.

And in the hi-tech sector Sony, which depends on the US for 30% of sales, shed 6% on Thursday.

Volatility risk

The other big fear for Asia is increased turbulence in financial markets.

Central banks have injected more than $190bn into global markets in the past two days.

But despite this, there are worries about liquidity in the markets.

Companies are nervous they will not be able to raise debt.

This means that firms already struggling to overcome the hard times will not have the cash flow to cushion themselves.

The lack of liquidity in the markets may also force companies to shelve expansion plans.

Optimists

However some people I have spoken to, who work in the Asian financial markets, are not so gloomy.

They were encouraged by Europe's stability and say most of Asia's finances are quite self-contained.

They say the region is not as reliant on the international capital markets as, say, South America.

Initial fears about steep rises in the price of oil have also been checked.

The OPEC oil-producing countries were quick to reassure the markets about continued supplies, and falling demand as manufacturing contracts would also counteract any rise in prices.

Dealers wait

For the moment Asian investors are waiting nervously for Monday's opening in the US stock markets.

There is expected to be an air of unreality about proceedings.

Dealers in Asia and Europe are already working together to ensure stability and US investment banks have already indicated that they will co-operate to ensure that the markets run smoothly.

Dealers have warned there will have to be a correction in US equity markets but a crash is extremely unlikely.

So it may be weeks possibly even months before Asia has an idea of what the full impact of this week's appalling events will be

.

See also:

13 Sep 01 | Business
Bleak outlook persists for Japan
07 Sep 01 | Business
Japan heads towards recession
13 Sep 01 | Business
Has economic crisis been avoided?
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