ADB warns growth at risk in Asian economies

ADB warns growth at risk in Asian economies

MANILA (Dow Jones): Multilateral lending agencies warned Monday that growth in some of Asia's developing economies next year is at risk from political uncertainties damping domestic consumption and foreign investment.

At a conference on Asia's economic prospects hosted by the Asian Development Bank, economists from the International Monetary Fund, World Bank and ADB agreed that growth in the region should remain robust this year but taper off in 2001 due to weaker domestic consumption and lower global growth.

The ADB forecasts that developing Asia's gross domestic product will grow 7.1 percent this year and slip to 6.4 percent in 2001. In September, the ADB estimated growth in the region of 6.9 percent this year and 6.5 percent in 2001. The region's GDP last year was 6.1 percent.

"The upward revision of our forecast was based on better than expected growth in private domestic demand and exports," said ADB economist Sailesh Jha.

Even so, economists from all three agencies warned that growth in some Asian countries - and especially the Philippines - could suffer next year due to political instability.

"There's a lot of uncertainly," said World Bank economist Hans Timmer, referring to the region as a whole.

The ADB cut its 2001 growth forecast for the Philippines, where President Joseph Estrada's impeachment on corruption charges is battering business confidence, to 3.3 percent from an original estimate of 4.3 percent. "For 2001, the forecast is basically affected by political uncertainty," said the ADB's Jha.

Some private sector economists fear that if the crisis spills well into next year, growth could be only 2 percent.

Meanwhile, the International Monetary Fund expects growth in the Philippines at 3 percent next year. "A lot will depend on external developments and the political situation," said IMF assistant director for research David Robinson.

The Philippine government has targeted growth of at least 4 percent this year - a goal many economists believe it won't achieve, and officials have said the economy could be severely affected in 2001 if the political crisis is prolonged.

The ADB's forecast for growth in Malaysia, which is also struggling with its own political problems, was cut to 7.5 percent for this year from an earlier forecast of 7.8 percent.

For Indonesia the ADB upgraded its growth forecast to 4.0 percent from 3.5 percent for this year and left it unchanged at 5.0 percent next year. Still, separatist violence, pervasive corruption and massive corporate debt remain big obstacles to the country's full recovery from Asia's 1997-1998 financial crisis.

In Thailand, where a weak baht, high oil prices and bad bank loans are hurting the economy, the ADB also left its forecasts unchanged at 4.5 percent this year and 4.6 percent next year.

The ADB said the sustainability of steady growth in these countries depends partially on the completion of corporate and financial sector reforms.

The IMF's Robinson said the "present unsettled conditions" in these economies "should gradually ease up over time."

China and the newly industrialized economies are projected to be the strongest performers in the region, with growth fueled by domestic demand and investment spending, particularly in the information technology sector.

The IMF cited three main risks to growth in the region next year: rising oil prices, the rise in the U.S. dollar, and overvalued stock markets.

"Flows (of capital) to emerging markets have held up but remain volatile," Robinson said, noting that a reversal of these flows will spell disaster to growth sustainability.