Developing Asia to do better in 2004, ADB says

Asian Economic News, Oct 6, 2003

MANILA, Sept. 30 Kyodo

Developing Asian economies will do better in 2004 after enduring ''significant shocks'' for most of this year, including fallout from the Iraq war, unstable oil prices and severe acute respiratory syndrome (SARS), the Asian Development Bank (ADB) said in a report Tuesday.

Gross domestic product (GDP) growth projected for Asia and the Pacific next year has been upped by the ADB to 6.1% from an original 5.9% forecast in April.

''The recovery in the industrial countries is now projected to firm up substantially during the second half of 2003 and, particularly in 2004, benefit the region's economies. Hence, aggregate GDP growth for the region in 2004 has been revised upward to 6.1%,'' the bank said in an update of its Asian Development Outlook, a report analyzing and forecasting economic trends in Asia and the Pacific.

But the Manila-based ADB also said, ''a very distinctive and notable feature of economic developments in the region over the past two years has been the emergence of the PRC (People's Republic of China) as a major growth engine for intraregional trade.''

The ADB said China has become the largest export market for the economies in East Asia and has become an important export destination for those in Southeast Asia.

''It should also be noted that exports of the PRC to these regional economies are also growing rapidly, but at a much slower pace than imports from them. These extraordinary figures indicate significant economic changes in the region as intraregional trade becomes a major force to be reckoned with,'' the bank said.

''If these trends continue and regional economies continue to focus on policies to achieve faster growth in domestic demand, Asia's economic outlook should become less dependent on economic developments in the major industrial countries,'' it said.

Significant improvements have also been noted in some Southeast Asian economies, particularly Singapore and Thailand.

Generally, the economies in the Southeast Asian subregion performed differently for the first half of 2003, based primarily on varying levels of strength of domestic demand and investment, among other factors, it noted.

The fallout, for instance, from recent terrorist attacks is ''likely to further cloud the investment climate in Indonesia,'' the ADB said.

And ''political uncertainty, the continuing civil strife in the large southern island of Mindanao, and slow progress in key economic legislation and policy reforms complicate the economic outlook for the Philippines,'' it said.

The bank did not change the 5.3% GDP growth estimate for 2003 that it projected in April.

Five months ago, the ADB said the forecast was based on several factors such as the extent of damage from SARS, which was raging at the time. The other factors were geopolitical issues such as the threat of terrorism and global economic uncertainties.

Because of SARS, lost GDP in nominal terms was estimated at $18 billion for developing Asia as a whole, an estimated 0.6 percentage point of the 2003 growth rate for the region.

Total final expenditure, which more closely reflects actual business losses, was likely close to $60 billion, equivalent to 2% of GDP, the bank said, adding losses might have been much higher had the outbreak not been contained.

''The analysis reveals that SARS has caused significant losses in several Asian economies, although it has not proved as catastrophic as some feared back at the height of the outbreak in April,'' the bank said.

Quarterly growth rates of the Asian countries also showed that the impact of SARS appeared greater in those economies that were already weak.

Mainly, SARS affected tourism and related services such as air travel, but consumption and other variables did not exacerbate the disturbance in the economies concerned, the ADB said.