Developing Asia remains world's economic bright spot

The Severe Acute Respiratory Syndrome (SARS) epidemic is likely to depress economic growth in developing Asia by 0.1 to 0.2 percentage point in 2003.

But the 41 economies that make up the region will still be the world's economic bright spot with aggregate growth in gross domestic product of 5.3 percent, the Asian Development Bank (ADB) said in a major economic report launched in Tokyo on Monday.

The economic impact of SARS is currently confined to East Asia and Southeast Asia.

Asia is expected to outperform the rest of the world economy including the United States, Japan and the euro area, the Manila- based ADB said in its flagship annual economic publication, Asian Development Outlook 2003 (ADO), which analyzes and forecasts economic trends in the Asia and Pacific region.

The region's momentum is expected to carry into 2004, when a stronger world economy is predicted, with the ADO report projecting higher aggregate gross domestic product (GDP) growth of 5.9 percent for developing Asia.

The main driving forces behind the robust outlook for Asia and the Pacific are expected strong domestic demand, improving export performance, a supportive policy environment and prudent fiscal and monetary policies.

Growth in 2002 was better than expected, reaching 5.7 percent as export demand picked up in the second half. Expansionary fiscal policies and accommodative monetary policies, mainly in East Asia and Southeast Asia, also provided a boost to growth in the region.

While inflation will remain higher in transition economies, average inflation for the region is estimated at a moderate 2.5 percent for this year, about a percentage point higher than in 2002.

Asia's economic outlook remains highly vulnerable to risks such as further weakness in industrial countries and the impact of SARS on tourism and business travel.

But the region is well positioned to face any emerging global challenges. "The region's strong fundamentals are reflected by the high level of reserves and low rates of inflation, leaving it in a good position to weather an uncertain external environment and the SARS outbreak," said ADB's Chief Economist Ifzal Ali.

Economic performance in the next two years is expected to improve in South Asia and the Pacific, and remain level in Southeast Asia. The subregional breakdowns are as follows:

Southeast Asia: These economies recovered more strongly than expected in 2002, growing 4.1 percent as a result of strengthening domestic demand and solid export performance. GDP growth is projected at 4 percent this year, less than previously expected due to the impact of SARS. Vietnam will be the strongest performer with 6.9 percent growth forecast for 2003. Singapore, another economy hard hit by SARS, will grow 2.3 percent.

Economic growth for Southeast Asia will likely accelerate to 4.8 percent in 2004. The continued strength of exports will be critical, while domestic demand will be supported by accommodative monetary policies.

East Asia: After a solid performance in 2002, when GDP growth reached 6.5%, growth is expected to moderate somewhat to 5.6 percent in 2003 as the region experiences more subdued domestic demand growth in several countries, including a slowdown in credit expansion in Republic of Korea.

The People's Republic of China (PRC) will be the strongest performer with growth of 7.3 percent. That figure is below 2002 growth as lagging growth in the interior provinces and the impact of SARS on business travel and tourism will influence the economy. Hong Kong, China, the economy hardest hit so far by SARS will see a 0.6 percent decline in GDP to 2 percent this year. Economic growth for East Asia as a whole will bounce back to 6.2% in 2004. Progress hinges on the global economic recovery and the continued rapid expansion of the PRC.

South Asia: GDP growth in South Asia is expected to climb to 5.7 percent in 2003, up from 4.2 percent in 2002. The stronger showing will be led by improved performance in India, which accounts for three quarters of the subregional economy. India will grow 6 percent this year. Nepal will bounce back from a 0.6 percent contraction in 2002 to post 1.5 percent growth this year. Economic growth for South Asia will rise to 6.1 percent in 2004.

Continued economic liberalization, an increasingly vibrant private sector and rising labor productivity will contribute to an improved business climate and more rapid investment growth.

Central Asia: Strong 2002 GDP growth of 7.7 percent in the region reflected the good performances of Azerbaijan, Kazakhstan, and Tajikistan. A moderate deceleration in growth to 5.8 percent is expected for 2003 and 2004 as oil and gas production slows somewhat. Azerbaijan will be the strongest performer this year with 9.5 percent growth. Uzbekistan will see its economic growth slow to 3.5 percent. Tajikistan will also see slower growth while the Kyrgyz economy should accelerate slightly.

The Pacific: After two years of decline, the Pacific economies saw a subdued recovery in 2002 with growth of 0.9 percent. The modest rebound is expected to continue, with growth of 2.4 percent in 2003 as social and political stability improves supported by rising tourism, an anticipated improvement in commodity prices and an improved business climate.

The Fiji Islands will be the strongest performer with growth of 5.7 percent, while Timor-Leste's economy will contract 2.3 percent. The Pacific is forecast to post economic growth of 2.5 percent in 2004.-- JP

GDP Rate (%) 2002 2003 2004

Developing Asia 5.7 5.3 5.9 East Asia 6.5 5.6 6.2 Southeast Asia 4.1 4.0 4.8 South Asia 4.2 5.7 6.1 Central Asia 7.7 5.8 5.8 The Pacific 0.9 2.4 2.5