Impact of Iraq and SARS to cut Asian growth in 2003: World Bank
Impact of Iraq and SARS to cut Asian growth in 2003: World Bank
Agence France-Presse
Tokyo
The impact of the war in Iraq, the SARS outbreak and the
general sluggishness of developed economies will cut East Asian
growth to around five percent this year from 5.8 percent in 2002,
the World Bank warned Thursday.
"While we had... expected East Asian growth to accelerate a
little in 2003, we now expect it to fall by almost a percentage
point to five percent before rebounding smartly in 2004 (to 5.7
percent)", the World Bank said in its updated outlook for the
region.
The economists cautioned the exceptional circumstances made it
even harder than usual to provide an accurate forecast.
"Projections for 2003 are even more uncertain than ordinarily
because of great uncertainties about the impact of the SARS
outbreak as well as, to a lesser extent, that of the Iraq crisis
and the implications of these shocks on an already fragile global
recovery," the report said.
"Growth could very well be significantly lower or possibly
higher than this."
The World Bank said the uncertainty over the impact of SARS
(Severe Acute Respiratory Syndrome) stemmed from the lack of
knowledge of about the virus and its mode of transmission. It
added "in the short run economic consequences arise almost
entirely from public perceptions and fears about the disease."
A scenario taking into account the impact on the most directly
affected activities such as tourism, transport and the retail
industry, suggested the impact of SARS could reduce regional
growth by 0.3 percentage points, the report said.
It noted the war in Iraq had so far played out in line with
the most optimistic scenario, in terms of the brevity of
conflict, securing the oil wells and limited regional political
fallout.
But it had already had an impact on the global economy through
volatile crude oil prices and the damage to business confidence.
"Even in this relatively benign base case scenario, it is
estimated that the initial run up in oil prices and the impact of
high geo-political stress and uncertainty on business and
consumer confidence may reduce developed country GDP (gross
domestic product) growth in 2003 by around 0.2 percentage points
relative to a 'no-war' scenario."
"This would affect East Asian exports and might have an
adverse impact effect on East Asian GDP growth of 0.1 to 0.2
percent," the report said.
But the World Bank stressed both crises were instances of
"temporary shock" and predicted regional growth would be expected
to rebound closer to six percent in 2004 as those shocks ran
their course and the global recovery picked up tempo.
The report still found some encouraging factors such as the
firm level of prices for raw materials and the return of a degree
of calm to global capital markets. Most positive was the
likelihood that strong domestic demand in China might provide a
partial buffer against recession in the rest of the world.
To weather this stormy period, the World Bank suggested that
governments in the region with healthy finances could consider
"carefully designed policies that support activity."
The report also envisaged possible benefits for East Asia from
the reconstruction of Iraq and any geo-political stabilization in
the Middle East.
"East Asian construction companies and skilled service
providers could find lucrative markets in Iraq in this scenario,"
it said.
But the World Bank also warned governments not to make China's
mistake of trying to cover up the seriousness of SARS.
"Since the short term economic impacts are entirely based on
public fears, information policy will play a critical role.
"Any perception that governments are hiding information will
lead people to assume the worst, magnifying the adverse effects."