SARS, Iraq war threaten region's economy: UN
Zakki Hakim, The Jakarta Post, Jakarta
The outbreak of SARS and the negative effect of the recent war in Iraq could become a serious threat to economies in the region, the UN Economic and Social Commission for Asia and the Pacific (UNESCAP) said, while presenting its latest regional economic survey on Thursday.
For Indonesia, economic growth this year was projected to slow down to around 3.4 percent, from 3.6 percent last year.
The results of the survey were drafted in January and February, when neither war in Iraq nor the deadly Severe Acute Respiratory Syndrome (SARS) had occurred. UNESCAP initially projected the Indonesian economy to grow more, by 4.1 percent this year, compared with the government's projection of 4 percent.
But the war and SARS could pose significant downside risks for the economies in Asia and the Pacific, UNESCAP said.
"At the beginning of the year, prospects for 2003 were that gross domestic product (GDP) growth would be sustained, perhaps even with some marginal improvement over 2002. However, the war in Iraq, SARS and lower growth in the developed economies pose significant downside risks," it said in a media statement.
"The most obvious and serious risk is what happens in the aftermath of military action in Iraq," the UN said, pointing out that although the war had come to an end and its impact on Iraq's oil industry was minimal, "its political and security impact on the Middle East could be more long-lasting.
"The global economy, too, has been adversely affected by the uncertainty leading up to the war. This is unlikely to be reversed immediately upon the cessation of hostilities," it said.
A prolonged economic slowdown in the U.S., Japan and other developed economies would hurt exports from developing countries in the region and undermine business confidence.
On the impact of SARS, UNESCAP said that it was too early to predict as it could extend into the second quarter of 2003.
It said that, at the moment, the tourism, travel, hotel and retail industries were seen as the most badly affected by the disease but, "If SARS persists for a long time, its impact will then extend beyond these sectors into actual production declines and job losses in sectors other than travel and hotels."
It added that at the moment the countries deemed to be badly affected by SARS were China (including Hong Kong), Singapore and Thailand, whose economies have large a tourism sector. The impact on Indonesia and Malaysia is seen as limited at this stage.
"If the spread of the disease is contained by June 2003, there exists, however, the possibility of a significant bounce-back in the third and fourth quarters of 2003 in the regional economy.
"The shock effect will wear off eventually and consumers will tend to spend more than they might have done otherwise. In that event the impact on output growth in 2003 could be very small."
UNESCAP said that, amid the various uncertainties, governments had to strive to sustain GDP growth by maintaining the momentum of structural reform and commitment to trade liberalization, and take measures to enhance productivity and competitiveness.