ADB Expects Bumper Year For Asia-Pac Economies In 2007

Source : The Business Times, September 18, 2007

8.3% growth seen but any severe US downturn could hit next year's performance

THE Asian Development Bank takes a bullish view of the region's economic prospects in its latest Asian Development Outlook published yesterday in which it suggests that growth in Asia and the Pacific (excluding Japan) will hit 8.3 per cent overall in 2007, making it 'another bumper year'.

But any severe downturn in the US economy could shave as much as 1-2 percentage points off the region's growth next year, the ADB admits.

China and India continue to be the main locomotives of growth in developing Asia and now account for 55.3 per cent of the region's total gross domestic product, the bi-annual Asian Development Outlook Update says. These two countries recorded their fastest growth in 13 years during the first half of the year, while accelerating economic expansion in the Philippines, Indonesia and Central Asia is helping to make regional growth more 'broad based'.

The ADB has updated its original growth forecast for the developing Asia-Pacific region from 7.6 per cent to 8.3 per cent in the light of these trends, and is provisionally forecasting 8.2 per cent growth in 2008. The report warns, however, that the economic outlook for next year is hazy as uncertainty prevails in global financial markets and worries about the health of the US economy mount.

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ADB Asian Development Outlook 2007

'If growth in the United States lurches down, developing Asia would not be immune. But the tremors from a downturn in the US are likely to be modest and short-lived even if it falls into recession,' according to the ADO. 'Available evidence suggests that, depending on timing, severity, and duration, a US recession could clip growth in developing Asia by 1-2 percentage points' in 2008 but the but the damage should be short-lived.

'If a synchronous steep downturn in the US, euro zone, and Japan were to occur - an event that currently seems improbable - growth in developing Asia would be at greater risk,' the ADO admits. But stout reserves, improved financial systems, and scope for policy adjustments put the region in a better position to weather any storm. Developing Asia's defences against external shocks are solid and it can weather a slowdown in the US, the report says, although it lists avian flu, geopolitical and security risks in some parts of the region and political uncertainty in a few countries as downside risks obscuring the outlook for a number of economies.

Within the overall region, East Asia is now expected to grow by 8.9 per cent in this year. The ADB lifts its growth forecast for China to 11.2 per cent this year and 10.8 per cent in 2008, citing brisk exports, strong investment and buoyant consumption.

South Asia, which continues to consolidate its progress in recent years, is expected to grow at 8.1 per cent in 2007. Potential growth rates in Bangladesh, India and Pakistan now appear to be on a more stable trajectory. The report projects India's economy to expand by 8.5 per cent in 2007 and 2008.

South-east Asia as a whole is now expected to grow at 6.1 per cent in 2007. Private sector dynamism will help Vietnam to post very strong growth of 8.3 per cent, while the Philippines' growth forecast is now upgraded to 6.6 per cent after the country registered its fastest first-half growth in almost 20 years. Growth in Indonesia continues to edge up and is now expected to reach 6.2 per cent. Growth in Thailand is expected to be close to the earlier estimate of 4 per cent for the year as political uncertainty continues to undermine consumer and private investment confidence.

Meanwhile, Central Asia's growth estimates for 2007 have been raised to 11.1 per cent as high oil prices and mineral exports continue to support economic expansion in the region.

The ADB downgrades the 2007 growth projection for Pacific Islands to 3.5 per cent from 4.5 per cent as an expected economic rebound in Timor-Leste has not been as strong as anticipated and the economic fallout in Fiji Islands has been more accentuated than expected. The ADO adds that while inflationary pressures emerged in some parts of the region in 2007, prospects for inflation in 2008 are difficult to predict as uncertainty shrouds the global economy. If growth turns out to be slower than anticipated, inflation could come down more quickly.