Oil prices to 'slow' East Asian growth

Oil prices to 'slow' East Asian growth

Mynardo Macaraig, Agence France-Presse, Manila

Record oil prices coupled with slowing exports are expected to
clip economic growth in East Asia to 6.8 percent in 2005, down
from a robust 7.6 percent notched-up last year, the Asian
Development Bank (ADB) said on Tuesday.

Gross domestic product (GDP) growth in 2006 is expected to
slowdown further to 6.6 percent, the ADB's Asia Economic Monitor
said.

The growth forecast was "subject to risks from further
increases in oil prices and a disorderly adjustment of the global
payments imbalance," the report said.

The report, released at the ADB headquarters in Manila, said
that a "loss of economic momentum in major industrial markets,"
and a drop in demand for new information technology products were
the main reasons for the worsening external economic environment.

The ADB noted that exports grew at a slower rate in the first
half of 2005, in all of East Asia's larger economies except
China. This development, coupled with higher oil prices and "a
general bias toward tighter macroeconomic policies," resulted in
the slower growth in most of the region.

Excluding China, East Asia is expected to post average growth
of 4.4 percent this year, compared to 5.5 percent growth last
year, the ADB added.

China however will also see its growth slow to 8.9 percent
this year and 8.0 percent in 2006 from 9.5 percent last year due
to "a gradual softening of fixed investment... and somewhat
diminished export prospects."

Singapore was expected to suffer the biggest slowdown in GDP
growth from 8.4 percent in 2004 to 3.7 percent in 2005 and 4.7
percent in 2006.
` "Being a highly open economy, Singapore's economy would be
adversely affected by the weak export prospects," the ADB report
remarked.

Thailand will see its GDP growth fall from 6.1 percent in 2004
to 4.3 and 5.3 percent growth in 2005 and 2006 respectively.

Malaysia's GDP growth was forecast to fall from 7.1 percent
last year to 5.3 percent this year and 5.7 percent next year
while Philippine GDP growth would stay at 4.7 percent in both
2005 and 2006 from 6.1 percent last year.

In contrast, Indonesia would see its GDP growth accelerate
from 5.1 percent in 2004 to 5.6 and 5.7 percent in 2005 and 2006
respectively.

The bank cited earlier studies showing that if the price of
oil remained at 55 dollars a barrel, East Asia's GDP growth would
fall by 1.6 percentage points while the inflation rate would rise
2.2 percentage points.

Net oil importers, Thailand, the Philippines, South Korea and
to a lesser extent China, will be hit the hardest, the ADB said
but even a net oil exporter like Malaysia will be adversely
affected as higher oil prices take their toll on its industrial
trading partners.

"We now face a backdrop of moderately slowing growth, a
gradual build-up of inflationary pressures, and a tightening of
US monetary policy," Pradumna Rana, an ADB senior director said
in the report.

"The key challenge for East Asia is to calibrate fiscal,
monetary, and exchange rate policies while at the same time
pursuing structural reforms to strengthen domestic demand," he
added.

The bank recommended a "tightening of monetary policy," in
China, Indonesia, Laos, Myanmar, the Philippines, Thailand and
Vietnam and to a lesser extent, Malaysia.

The ADB also praised China and Malaysia for moving away from
fixed pegs for their currencies and towards more flexible
exchange rate regimes, saying this would have "profound economic
implications."

It said that these moves would "foster greater exchange rate
flexibility in Asia as a whole," adding that it would likely be
"accompanied by an appreciation of most regional currencies," and
would also help lower inflationary pressures.