ADB predicts E. Asia economy will grow 6.8% this year

MANILA, Aug. 9 Kyodo

Soaring oil prices and a ”less favorable external economic environment” will continue to weigh down East Asian countries recovering from the 1997 financial crisis, hampering overall growth to only 6.8 percent this year, down from 7.6 percent in 2004, the Asian Development Bank said Tuesday.

”With the external economic environment turning somewhat less favorable and oil prices reaching record levels in nominal terms, East Asia is expected to experience a moderate slowdown this year,” the Manila-based bank said in its report Asia Economic Monitor.

Japan, Taiwan and Hong Kong were not included in the report’s calculations as it covered only China, South Korea, Thailand, Singapore, Malaysia, the Philippines, Indonesia, Vietnam, Myanmar, Laos, Brunei and Cambodia.

Excluding China, the bank said the relevant East Asian countries are expected to post a much lower average gross domestic product growth of 4.4 percent this year, or about 1 percentage point lower than last year’s growth of 5.5 percent.

”The gradual deceleration in East Asia’s GDP growth that began in the middle of 2004 has continued this year,” the bank said. ”Available data for GDP and exports for the first half of this year already point to a slowdown, although with considerable variation among countries.”

China’s economy grew 9.4 percent in the first quarter of this year, and 9.5 percent in the second quarter, according to the bank.

”However, a gradual softening of fixed investment, already under way, and somewhat diminished export prospects are expected to slow GDP growth in the quarters ahead. GDP growth for 2005 is forecast at 8.9 percent, down from 9.5 in 2004,” the bank said.

Singapore — which the bank predicted to grow only 3.6 percent this year, down from 8.4 percent in 2004 — is likely to be among the economies hardest hit by the deteriorating external environment.

”Singapore’s highly open economy will be adversely affected by weaker export prospects and slower export growth may affect consumer and business sentiments, thus affected domestic demand,” the bank said.

Indeed, Pradumna Rana, senior director of the ADB’s Office of Regional Economic Integration, said, ”We now face a backdrop of moderately slowing growth, a gradual buildup of inflationary pressures, and a tightening of U.S. monetary policy.”

”The key challenge for East Asia is to calibrate fiscal, monetary, and exchange rate policies while at the same time pursuing structural reforms to strengthen domestic demand,” Rana said.

The bank cited the loss of economic momentum in major industrial markets and softness in the information technology cycle as the main reasons for the worsening external economic environment.

”Exports grew at a slower rate in the first half of this year in all East Asia’s larger economies except China, continuing the trend since the middle of last year. Coupled with higher oil prices and a general bias toward tighter macroeconomic policies, the result has been slower growth in domestic demand in most East Asian economies,” the bank said.

East Asian stock markets in general held up well in the first half, while currencies remained stable or depreciated against the U.S. dollar.

Asia Economic Monitor is a semiannual review of growth, financial and corporate sector restructuring, and emerging policy issues in countries badly impacted by the 1997 financial crisis.

Despite a sharp increase in international oil prices, sporadic outbreaks of avian flu, and the tsunami disaster, the bank said the exceptionally favorable environment enabled East Asia to port an impressive average GDP growth of 7.6 percent in 2004 — the second highest rate since the 1997 crisis.

Excluding China, it said average GDP growth was lower at 5.5 percent and closer to the annual average GDP growth posted by these countries in years since the 1997 crisis.

COPYRIGHT 2005 Kyodo News International, Inc.

COPYRIGHT 2005 Gale Group

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