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.