ADB predicts strong Asian growth in 2002

ADB predicts strong Asian growth in 2002

TOKYO (AFP): Asia will remain at the top of the world growth league and will see a return to the good times by 2002, even if it has to absorb the impact of the slowdown in the U.S. economy, the Asian Development Bank said in its annual forecast published on Thursday.

The Manila-based ADB's 'Asian Development Outlook 2001,' unveiled in Tokyo, predicts growth in the region's developing countries will slow from more than seven percent in calendar 2000 to 5.3 percent this year before recovering to 6.1 percent in 2002.

The forecast is based on the bank's "relatively sanguine outlook" that global growth is set to experience a "relatively shallow and short-term slowdown" to around 3.5 percent this year from 4.8 percent in 2000, before picking up to almost 4.0 percent in 2002.

"A deeper and more long-lived slowdown in the U.S. and the uncertain outlook for Japan," are identified in the report as the major risks for the global economy.

"The risks are especially significant for those DMCs (developing member countries of the ADB), where recoveries depend heavily on exports, where financial and corporate restructuring is incomplete and where political uncertainties remain," the report warned.

"The effect of the US slowdown on DMCs will depend heavily on the behavior of intraregional trade," the report said, noting it had grown significantly over the last decade, "and can play a role in reducing the region's vulnerability to external factors."

The weakness of U.S. demand, which was the engine of the region's spectacular recovery after the 1997-98 economic crisis, will primarily affect the so-called newly industrialized economies (NIEs) -- Hong Kong, Singapore, South Korea and Taiwan -- and "the countries of Southeast Asia depending heavily on technology exports and on the U.S. market."

The NIEs will see their growth rate fall from 8.4 percent in 2000 to just 4.3 percent this year, before rebounding to 5.6 percent next year, according to the ADB's analysis.

South Korea, which is curiously lumped together with the DMCs by the ADB, even though it is a member of the OECD, is forecast to chart the same course, with growth slowing from 8.8 percent in 2000 to 3.9 percent and then 5.5 percent next year.

The current slowdown in the United States will not have the same impact as the 1991 recession, however, the ADB said, since electronic exports from the region will increasingly be composed of components for which global demand remains strong.

The exception will be China and Indonesia which are still heavily dependent on consumer products, although in China's case, the report makes clear the adverse effect is relative.

"Driven by domestic demand growth, the PRC economy is forecast to slow somewhat but still grow by over 7 percent in 2001 and 2002," it said.

The other regional giant, India, should perform almost as well, the ADB predicted, with growth of between 6.0 and 7.0 percent.

The ADB highlighted several reasons for its belief that the current economic situation is fundamentally different from 1997/98, "and that another crisis is, therefore, extremely unlikely."

For one thing, this time round, the external factor is "primarily a real rather than a financial shock," the report said.

Those countries hurt by the crisis now enjoy a much stronger position in terms of current account surpluses and foreign exchange reserves, and have embarked on corporate and financial system reforms, it argued.

Another difference is that in terms of capital flows into the region, a relatively stable level of foreign direct investment has replaced volatile short-term bank loans.

But the bank warned the region's developing nations against being complacent about "new and different weaknesses, in particular for the five countries most seriously affected by the last crisis -- Indonesia, Malaysia, the Philippines, South Korea and Thailand.

The ADB's recommendation is for them to "move ahead with needed structural reforms," and focus on domestic demand and the too low, pre-crisis levels of fixed investment in order to reduce their reliance on exports.