Asia economies ahead of world's: Report

Asia economies ahead of world's: Report

Agence France-Presse, Singapore

Asia-Pacific economies are set to grow faster than the rest of the world over the next few years but worries over a US-led attack on Iraq and a patchy recovery in industrial nations may hold the region back, according to a study.

The Economist Intelligence Unit (EIU) report, prepared before the deadly Bali bomb blast a week ago, said Asian economies outside of Japan would enjoy the world's fastest average gross domestic product (GDP) regional growth rate of 5.6 percent annually from this year to 2006.

In contrast, the world economy is projected to grow at an average of 2.7 percent this year from 2.0 percent in 2001. For 2003, growth is seen at 3.6 percent and during 2004-06, the pace of expansion will average four percent.

For the US economy, the EIU has trimmed its 2003 growth projections to 2.6 percent from 2.8 percent previously to reflect "both an expected weakening of activity in the closing months of 2002 and a gloomier view of the prospects for consumption, investment and exports."

Given that most of the regional econonies are heavily trade- oriented, the grim projections for the US economy and member countries of the Organisation for Economic Devlopment and Co- operation (OECD) will undoubtedly impact Asia.

"The region is likely to attract foreign investment at a time of poor returns in the OECD, which will help boost domestic demand, but this will by no means provide a full offset to weaker exports," the EIU said.

"There are signs that some countries in the region have recently started contracting again as their exports slow," it said.

China, whose economy has put in a dazzling performance since its doors opened more than a decade ago, will lead the region's growth along with India, EIU said.

A number of countries in Asia are still somewhat pinned down by the reforms they had to undertake due to the 1997-98 financial crisis but growth in the region is still expected to be higher than in other emerging economies, EIU said.

"The financial and corporate sector restructuring that began after the crisis is still affecting economic performance in many countries," EIU said.

"Although such reforms are necessary to underpin medium-term prospects, they are having a detrimental impact on growth in the short-term, as unprofitable operations are closed and bad debts are dealt with," it said.

Southeast Asia, which was severely hit by the crisis, will grow an average 4.8 percent from this year to 2007 but the anticipated sluggish OECD growth will dull the region's export engines, the EIU said.

"In view of the large share of exports in GDP, the continued sluggishness of OECD import demand will hold the ASEAN countries back in 2002 and the first half of 2003, but the sub-region will benefit disproportionately when global import demand finally does recover late next year," it said.

Indonesia, the most populous member of the 10-nation Association of Southeast Asian Nations (ASEAN) grouping, faces a bleak outlook even as its exports recover, EIU said.

The domestic econommy remains hostage to rising unemployment, poor security situation and a precarious foreign debt position, it said.

In the Philippines, annual GDP average growth is seen at slightly over four percent from 2002-06 but the country's dependence on the US economy will expose it to renewed weakness in the world's biggest economy.

Similary for Malaysia and Singapore, which are both reliant on exports, growth rates for 2002 "involve the economies slowing in the second half of the year as US demand weakens, and this will drag growth back in 2003," EIU said.

For Thailand, GDP this year will expand 4.1 percent and 4.6 percent in 2003.

However, the fallout from a possible US-Iraq conflict and long-standing imbalances in the US economy -- still the world's growth locomotive -- pose the two biggest risks to these forecasts, EIU said.

While US economic fundamentals are reasonable, the EIU said its economy's "serious structural imbalances have yet to be corrected."

"Positive sentiment towards the US has allowed these imbalances to grow unchecked for many years, but the recent change in mood could, if it continues, result in a collapse in the dollar and continued declines in US equity markets," EIU said.

These could trigger the "long awaited correction of the current account deficit and a rise in private sector saving," it said.

Worries of a possible US-led war against Iraq are weighing on the global economy, pushing up oil prices.

"Higher oil prices act as a tax on production in much of the OECD and so weaken economic growth," it said.

"The persistence of this risk premium during the second-half of 2002 and early 2003 is expected to slow GDP growth in the OECD by about 0.2 percent."