AS if coping with the uncertainties of war isn't enough, economies in the region now have to cope with yet another crisis. The deadly Severe Acute Respiratory Syndrome (SARS) is taking its toll on Asia at a time when many of these economies are already vulnerable due to a weak external sector.
In the past, problems of weakening exports have been cushioned by the services sector but as the virus continues to take its toll with no cure in sight, the culmination of numerous factors are now proving to be lethal for economic growth.
In Hong Kong where more than 620 people have been infected, Dutch Banking group ABN Amro has cut its gross domestic product (GDP) forecast to 3.5 per cent.
In Singapore, where there are 91 infected cases, expectations are growing that the government's official growth forecast will also be revised.
It is hardly surprising then that financial pundits are gloomy about the consequences of a protracted war and the effects of SARS.
The effects of SARS will be felt more directly and a lot sooner, says a regional economist. Most companies are soon going to be citing the disease as one of the reasons for failing to meet earnings expectations.
While there are no confirmed cases in Malaysia as yet, the effects are nonetheless bound to take its toll on the local economy, given our proximity to Singapore.
The war in itself would not affect tourism that badly, says Azrul Azwar, economist at MIDF Sisma Securities (MSS), but the combination of the war and health concerns will have an impact on the economy.
The war is already bad, agrees Datuk Dr Zainal Aznam Yusof, a working member of National Economic Action Council (NEAC), but the SARS is an additional negative that will affect travel. We are depending quite a bit on foreign exchange, so we will be taking a bit of a hit.
Although both agree that it is still premature to determine the exact impact on the economy, they nonetheless feel that in the immediate to medium term there will be some visible effects.
Last year, the services sector contributed 57 per cent to the economy. Any downward revision in the services sector would thus drag down the overall GDP growth and tourism, an integral part of the services sector, contributing 19 per cent to the economy last year.
It is for this reason that Azrul believes that the health concerns pose a bigger threat to the economy rather than the Iraq war or fears of terrorism.
Azrul says if concerns over SARS continue, he will have little choice but to further revise his growth forecast to 4.4 per cent from the present 4.5 per cent.
In a report on the tourism industry, MSS compares the present situation to being similar to that of 1997 when Malaysia already plagued by the financial crisis was further afflicted by various other health concerns; the haze, the Coxsackies virus and the outbreak of cholera.
In that year, tourist arrivals plunged by almost 13 per cent to approximately 6.2 million while tourism receipts fell by 6.3 per cent to RM9.7 billion.
The combination of war, health concerns and possible strained diplomatic ties with two of our biggest tourism markets, Singapore and India, could all work together to affect tourism.
Given this scenario, MSS has reduced its targeted tourist arrivals to 12.9 million from 13.56 million and tourism forex earnings to RM25.2 billion from RM28.5 billion. But the crux of the problem lies in the fact that much of the impact of the SARS virus on the economy will depend upon how long these concerns will continue.
And like the war, it is the uncertainty that continues to dampen sentiment.
SARS will definitely pull down the economy but how big the impact is, we are not sure, says Zainal of NEAC.
Where the war is concerned, a lot will depend on the duration. So far, the war has lasted longer than anyone thought. Initially it was assumed that the war would be confined to Iraq, but as it starts to become like guerrilla warfare like Vietnam and Lebanon, things can become quite complicated.
He says: A lot depends on what is going to happen over the next two weeks in terms of how protracted the resistance is going to be. Some are already talking about the possibility of a global recession.
The central bank, Zainal adds, has already revised its GDP growth forecast to 4.5 per cent from 6.5 per cent. But the worry now is whether there are going to be any spill over effects to next year.
Thus far, forecasts are that 2004 is going to be a better year with a growth rate of between 5 per cent and 6 per cent. But this is based on the assumption that the negative impact on the economy will not be all that severe.
It would also seem that the impact is going to be quite harsh if the latest trade figures are anything to go by.
According to MSS, Malaysia emerged the odd one out in Asia achieving only a 7.8 per cent growth in exports year-on-year for the month of February, compared to other economies in the region that enjoyed double-digit growth. Thailand achieved 25 per cent, South Korea (22.5 percent), Taiwan (22.1 percent) and Singapore (20 percent).
The failure to achieve double digit is disappointing considering that gross exports for February 2002 was the lowest for whole of 2002, thus expectations for the low base effect was already factored in. Compared to January 2003, exports declined 14.1 per cent.
In a statement, the Ministry of International Trade and Industry attributed the slower year-on-year growth and month-on-month decline in exports to fewer working days in February, which would have delayed shipments.
Economists, however, attribute it to other factors as well. Malaysia, they say, has too high an export exposure to the electronics industry, which makes our export performance vulnerable to modifications in global demand and supply structure as well as price fluctuations unlike Singapore, for example, which is benefiting from a growth in biotech exports.
Given the circumstances, it is hardly surprising then that the prognosis for Malaysian economy isn't all that encouraging. The Malaysian Institute of Economic Research (MIER) has said it will cut its 2003 real GDP growth forecast.
The Federation of Malaysian Manufacturers (FMM) has also said that it expects the manufacturing sector to grow by 2 per cent this year compared with 4.1 per cent last year, following a cancellation of orders from countries like Kuwait and Bahrain.
The SARS epidemic meanwhile has caused foreign buyers of clothing and textiles to cancel trips to the region.