Asia to outperform this year, lower growth seen in 2005

Asia to outperform this year, lower growth seen in 2005

Cecil Morella, Agence France-Presse/Manila

Developing Asia is set to outperform this year with higher-
than-expected growth of 7 percent despite high oil prices but it
will slow in 2005 in tandem with the developed world, the Asian
Development Bank (ADB) said on Wednesday.

The Philippines-based ADB raised by 0.2 percentage points its
April forecast for 6.8 percent growth for the region in 2004,
while cutting its 2005 estimate by half a point to 6.2 percent.

The region is driven by export growth that is set to rise by a
higher than expected 18.1 percent this year, robust domestic
demand and -- for the first time since the 1997 Asian crisis --
"the return of strong business investment in Asia", chief ADB
economist Ifzal Ali said.

The region's expected growth this year will be equal to that
of 2000, which was the fastest after the financial crisis.

Ali said this was helped by the synchronized economic upturns
in the United States, the European Union and Japan -- the
region's main trading partners -- which he said may lose steam
next year.

The ADB also expects high oil prices to be sustained over time
with strong demand from the U.S., China and India a key factor,
which could stoke inflation and force central banks to tighten
monetary policy.

It raised the inflation forecast for the region this year by
0.4 points to 3.7 percent and by 1.3 points to 4.4 percent in
2005.

Due to oil, the region's imports bill will increase by 20.8
percent this year, six percentage points above the original
forecast.

This would "start having an impact in middle- and end-2005,
and the question that could be raised as we approach the end of
2005 is, could the specter of stagflation return?" Ali told a
news conference.

The ADB upgraded its 2004 gross domestic product (GDP) growth
forecast for China by half a point to 8.8 percent but trimmed its
2005 projection by 0.2 points to 8 percent.

Ali said China's 9.8 percent GDP growth in the first quarter
and 9.6 percent in the second were not sustainable, suggesting
that the results of Beijing's efforts to cool the red-hot economy
have been modest.

"As a result, a hard landing in China is still possible," with
grave implications to the rest of the region due to growing
inter-regional trade, he said.

At the same time, he noted that China's policy-makers "have
historically been very pragmatic and we still expect that the
baseline landing will be soft."

South Korea was forecast to be East Asia's laggard despite
buoyant exports, with expected GDP growth pared down by 0.4
points to 4.4 percent this year and by 1.6 points to 3.6 percent
next year. Domestic demand has been weak, weighed down by a heavy
household debt burden.

Malaysia and Singapore are seen as Southeast Asia's star
performers amid brisk global demand for their exports.

There was a significant pickup in business investment across
the sub-region, contributing 3.9 and 5.1 percentage points to
Kuala Lumpur's GDP growth in the first and second quarters
respectively, and 8.4 and 5.1 points for Singapore.

The ADB upgraded its GDP growth forecast for Malaysia by a
full point to 6.8 percent this year and by 0.4 points to 6
percent in 2005.

Singapore's GDP forecast was raised by 2.5 points to 8.1
percent this year but trimmed by 0.6 points to 4.2 percent next
year.

Thailand continued to show healthy growth, while Indonesia and
the Philippines were described as growing below their full
potential.

Indonesia's net oil and gas exports fell by 26 percent in the
first half due to declining production.

The bank said capacity utilization in Thailand surpassed the
pre-Asian crisis levels for automobiles, electrical appliances,
electronics, and steel. Its merchandise exports were forecast to
rise by 20 percent this year, six points above the original
projection.

The Indonesian presidential election should boost confidence
in the economy, the bank said. Its forecast GDP growth for the
country for 2004 was raised by 0.3 points to 4.8 percent and by
0.7 points to 5.2 percent next year.

Thailand's GDP growth forecast was trimmed by 0.8 points to
6.4 percent this year but upgraded by 0.4 points to 6.6 percent
next year.

Erratic monsoons as well as destructive floods across large
parts of India caused the ADB to trim its GDP forecast by 0.9
points to 6.5 percent and by 1.6 points to 6 percent next year.