Asia to grow 5.5 percent in next five years, short-term risks seen

Asia to grow 5.5 percent in next five years, short-term risks seen

Agence France-Presse, Singapore

Asia-Pacific economies are expected to grow faster than other regions in the next five years but expansion could be disrupted in the short term by several risks including a U.S. slowdown and a resurgence of the SARS epidemic, a report said on Monday.

In its latest projections, the Economist Intelligence Unit (EIU) predicted that gross domestic product (GDP) in the Asia- Australia region excluding Japan will enjoy the fastest average annual expansion rate of 5.5 percent in 2003-2007 compared with other areas.

But the performance will be a shadow of the growth experienced before the 1997-1998 Asian financial crisis, the EIU said.

In the near term, the projected improvement in the region's performance is due to the brighter outlook for the global economy, particularly that of the U.S. which is a major market for Asia's export-dependent economies, it said.

However, a number of risks threaten to halt Asia's upward momentum, the EIU said.

These include a resurgence of the Severe Acute Respiratory Syndrome (SARS) epidemic, a slowdown in U.S. consumer spending and continued sluggishness in Organisation for Economic Cooperation and Development (OECD) members, it said.

"World economic performance has improved in recent weeks... nevertheless, there remain serious problems in some of the world's largest economies, and our upgraded forecasts still suggest that the OECD will take until late 2004 to reach even a trend pace of growth," the EIU said.

"Emerging Asia is particularly likely to be affected by these trends. Sales into the OECD are rising only slowly and many countries are relying instead on exports to China and efforts to boost domestic demand," it said.

The EIU also warned a resurgence of SARS, which struck mainly East Asia and claimed more than 800 lives globally, cannot be ruled out.

SARS dealt a devastating blow to the regional economies particularly in the June quarter as travelers delayed or canceled trips to Asia, which cost the lucrative airlines, conventions and hotels sector billions of dollars in lost revenues.

At the same time, the region is still feeling the after- effects of reforms implemented after the 1997-1998 crisis, the report said.

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

"In addition, OECD import demand growth will remain far slower than during the bubble years of the 1990s, acting as a drag on Asia's highly export-dependent economies," the EIU said.

The 10-member Association of Southeast Asian Nations (ASEAN) grouping, still struggling to regain its lost glory since being hit badly by the regional financial crisis, is likely to grow by an average of 3.9 percent in 2003 and 4.9 percent in the following year, it said.

Much of ASEAN's growth will be driven by the strong performances of China and India, the region's second and third largest economies after Japan, the EIU said.

"This is very different from the mid-1990s, when Asia's performance was linked to rapid growth across much of the region," it said.

Real gross domestic product (GDP) growth in China is projected to average an "extremely fast" eight percent in 2003 despite the SARS epidemic, the EIU said.

"Export growth is impressive despite the weakness of world demand, but investment is now driving the economy forward," it said.

Hong Kong, also struck by the SARS outbreak, will struggle economically until 2004, the EIU said.

"Domestic demand is recovering strongly from the SARS crisis, but the impact on the economy in the first-half of 2003 was so severe that we expect average GDP growth for year to be just 1.1 percent," it said.

Malaysia and Singapore, whose economies are heavily dependent on global conditions, will track trends in world trade.

"Weak U.S. demand, combined with the negative implications of the SARS outbreak (particularly in Singapore), held growth back in the first-half of 2003, and only a modest recovery is expected in the months ahead," it said.

Singapore is expected to grow 1.1 percent in 2003 and Malaysia 3.9 percent.

Fellow ASEAN country Thailand will likely expand 4.7 percent this year, Indonesia to grow 3.6 percent and the Philippines economy is to post a four percent expansion.