East Asian GDP to rebound: ADB

East Asian GDP to rebound: ADB

Cecil Morella, Agence France-Presse, Manila

Sluggish East Asian economies should improve in the second half, helped by a short-term easing of fiscal and monetary policies after the Iraq war and SARS outbreak, Asian Development Bank (ADB) chief Tadao Chino said Tuesday.

A better outlook for developing East Asia's major trading partners should also help it post 5.5 percent growth this year, the head of the Manila-based bank said.

Except for China and Thailand, economic growth in the region slowed amid global uncertainties in the three months to March. The Severe Acute Respiratory Syndrome (SARS) epidemic in the second quarter made it worse, he said in a statement.

Since then, "some key developments including those in recent weeks give room for optimism that East Asia's growth should pick up in the second half of this year, and strengthen further next year."

Chino said "strong actions by governments both in the region and worldwide" had curbed the SARS outbreak. If the disease stays under control, "the adverse economic impacts of SARS should turn out to be moderate reducing growth of developing Asia by 0.1 to 0.2 percentage points in 2003."

Economic growth in the United States, a key trading partner, should pick up in the second half amid interest rate cuts, more robust consumer spending, and strong stock market rallies worldwide, he said.

There was also improved business sentiment in Japan.

He praised East Asia's "significant progress in implementing reforms, particularly in addressing weaknesses in the financial and corporate sectors", leading to lower bad loan ratios and improved capitalization.

But the first half slowdown "will pull down growth for the year as a whole. Therefore, East Asia is now forecast to grow by 5.5 percent this year compared with 6.6 percent last year."

Most countries would register lower growth this year -- from just over 2.0 percent in Singapore, about 4.0 percent in Indonesia, South Korea, Malaysia, the Philippines and Thailand, and 7.2 percent in China, he said.

For 2004, "we expect East Asia to achieve an average growth of 6.3 percent. Growth next year should be higher than this year in almost every country in the region, ranging from about four percent in Indonesia and the Philippines to 7.5 percent in (China), with most other countries expected to post growth above five percent."

But "any increase in geopolitical risks could heighten uncertainty among consumers and investors," while "the large imbalances in the industrial economies remain a risk to the global economy and the region."

Chino said the emerging economic picture in East Asia "calls for a two-pronged economic policy response at least for some time: first, monetary and fiscal loosening where there is scope; and second, expeditious completion of the restructuring and reform agenda."

He said there was ample room for monetary and fiscal easing because the region "has excess production capacity in many sectors, low inflation, a robust balance of payments, and sizable foreign exchange reserves."

"It is encouraging that, partly in response to the SARS- induced slowdown in growth, several countries in the region have recently announced fiscal stimulus packages."

Chino also warned, "Although the worst of the SARS outbreak appears to be over, countries should remain vigilant and continue to take preventive measures against its recurrence."