Goldman Sachs Cuts Asia Growth Forecast on Slowing U.S. Economy

By Shamim Adam

Jan. 14 (Bloomberg) -- An expected recession in the U.S. this year will curb economic growth in Asia excluding Japan, according to Goldman Sachs Group Inc., which reduced its forecasts for the region's expansion.

The economies will grow 8.3 percent in 2008, down from an earlier estimate of 8.6 percent, Hong Kong-based economist Michael Buchanan said in a report today. Next year's growth will be 8.5 percent, compared with a prior prediction of 8.6 percent.

Goldman Sachs last week joined Morgan Stanley and Merrill Lynch & Co. in forecasting that the world's largest economy will slip into recession this year for the first time since 2001 amid fallout from the subprime mortgage crisis. The U.S. is the biggest market for most of Asia's export-dependent economies.

``There could be a `tipping point' at which the U.S. slowdown has a more significant impact on Asia than before,'' Buchanan wrote. ``The further deterioration in the U.S. economy comes as Japan is also teetering on the edge of recession.''

Goldman is predicting a 50 percent chance of a recession in Japan, the world's second-largest economy. It lowered its growth forecasts for all 10 Asian economies that it covered in the report, including reductions to China and India.

East Asia's exports are forecast to climb 15.2 percent this year, after jumping 17.8 percent in 2007, the World Bank said in its Global Economic Prospects 2008 report released last week.

The region is almost twice as reliant on exports as the rest of the world, with 60 percent of shipments abroad ultimately destined for the U.S., Europe and Japan.

China will expand 10 percent this year, from an earlier forecast of 10.3 percent, Goldman predicted. It cut Indian's growth estimate to 7.8 percent from 8 percent.

``Overall, these forecast reductions are meaningful but not disastrous,'' Buchanan said. ``The impact on currencies is in general likely to be contained, although equity markets could be in for more volatility.''