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."