China, India to power Asia despite high oil prices: ADB
China, India to power Asia despite high oil prices: ADB
Martin Abbugao, Agence France-Presse/Singapore
China and India will help pull the rest of Asia to forecast average growth of 6.5 percent this year, which may even pick up further in 2006 and 2007, the Asian Development Bank (ADB) chief said on Friday.
ADB president Harukiko Kuroda cautioned, however, that surging oil prices -- which were hovering near US$70 a barrel as of Friday afternoon in Asia -- remained an uncertainty and could scupper the growth projections.
Robust growth in the United States, signs of an economic recovery in Japan and projections for an economic rebound in the eurozone in the second half are also likely to cushion the impact of higher oil prices, he said.
Kuroda said the impact of escalating fuel costs varies across the region, with India and China likely to fare better than Southeast Asian economies.
"For developing Asia, (the ADB's forecast of) 6.5 percent growth this year can be basically maintained," he told foreign correspondents in Singapore.
ADB's assumption when it made the projection in April was for oil prices to fall to $40 a barrel.
But even if oil prices have risen to around $70 a barrel and there are no signs of them receding soon, Kuroda said the impact on Asia has "surprisingly" been limited, prompting the bank to maintain its forecasts.
"One positive factor has been the very robust growth in the United States," he said, adding that Japan and Europe -- major Asian export markets -- were also showing signs of an economic rebound.
"In the next year and the year after ... we expect, generally speaking, slightly accelerated growth for developing Asia as a whole," he said.
The Manila-based ADB will issue its latest forecast on Sept. 8.
Kuroda said that in general, higher oil prices would normally mean slower growth for Asia, where a majority of countries import their fuel needs.
"But interestingly and surprisingly so far, not much slowdown has been seen, particularly in India and China. Their economies are continuing to grow," he said.
"Of course, some economies have showed signs of a slowdown, like the Thai economy, but the two biggest economies in developing Asia -- the Chinese and the Indian economies -- are showing no signs of a slowdown."
He said the ADB had originally expected the Chinese economy to slow from 9.6 percent last year to 8.5 percent this year but this is now unlikely to happen.
Instead, China's economy may grow 9.0 percent or more this year, meaning there would be a 'soft landing'.
The Indian economy for its part is projected to grow close to 7.0 percent this year and maintain that pace in 2006 and 2007.
Kuroda cautioned that rocketing oil prices remained a risk even if he did not think that $70 levels would stay for a long time.
"There's a great uncertainty that exists ... basically, we are positive (about Asian growth) but extremely high oil prices could undermine otherwise robust growth," he warned.
Kuroda also said one reason why Asian economies had been cushioned from the impact of soaring oil prices is that countries like China, India and Indonesia heavily subsidize them, fueling demand and keeping prices artificially lower.
Thailand, which scrapped oil subsidies this year, is feeling the effects of higher oil prices more than countries which have maintained subsidies.
But with Asia being home to 620 million poor people who live on less than $1 a day, subsidies should be removed gradually, Kuroda said.
While this may hurt consumers in the short-term in terms of higher prices for gasoline and cooking oil, removing subsidies would enable governments to maintain financial health and tackle poverty in the longer-term, he said.