But oil prices, credit strains can cut growth
DEVELOPING Asia will likely grow this year at a faster rate than initially expected, as its main economic engines — China and India — continue to hum despite a slight uptick in inflation, the Asian Development Bank (ADB) said yesterday.
In its Asian Development Outlook 2007 Update, the Manila-based regional development bank raised this year’s growth forecast for Asia excluding Japan to 8.3 per cent from 7.6 per cent in the March outlook, and its forecast for next year to 8.2 per cent from 7.7 per cent.
But the improved prospects for developing Asia have pitfalls. The ADB said these include volatile oil prices and the impact of credit market strains on the United States economy.
“This reassessment stems from the exceptionally strong performance of Asia’s giants
— China and India,” said ADB chief economist Ifzal Ali in his foreword to the publication.
“The headline numbers for 2007 have also been lifted by faster-than-expected growth in Indonesia and the Philippines.”
If China and India are excluded, the other economies in developing Asia are expected to grow by a more modest 5.7 per cent this year and 5.6 per cent the next year.
“The baseline forecasts for 2007 anticipates some modest slowing in the global economy and a mild recovery in the US through to 2008. Stabilising monetary responses seem likely,” the ADB update said.
“But the downside risks to growth in 2008 are elevated and much will depend on whether distress in credit markets deepens and spills over into the wider financial system and real economy.”
Mr Ali said that as a deep downturn in the US with knockon effects in Japan and the Eurozone would mark a significant deterioration in the external environment, it would undoubtedly cut into the region’s growth going into 2008.
“At the same time however, developing Asia ... has stout financial defences and some scope for policy adjustments,” Mr Ali added. — DOW JONES
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