Hong Kong, April 6, 2006 AEST (ABN Newswire) - Developing Asian economies will deliver strong growth in 2006 supported by a broadly favorable outlook for the international economy, the continuing trend toward improved economic management, and apparent resilience to high oil prices, Asian Development Bank (ASX: ATB) says in a major new report.
ADB's flagship annual economic publication, Asian Development Outlook (ADO), launched in Hong Kong, China, today, projects the region will achieve an overall economic expansion of 7.2% in 2006 and 7% in 2007, a marginal easing from 7.4% in 2005.
"The strength of the global economy remains a key determinant of growth in developing Asia," says Ifzal Ali, Chief Economist of the Manila-based multilateral development bank. "The major industrial economies are expected to grow close to potential and global trade will remain firm this year."
"Asian economies will take strength from the continuing upswing in the global electronics sector and fast growth expected in the People's Republic of China and India," he says.
Growth projections for developing Asia as a region are heavily influenced by three key economies: PRC, India, and Republic of Korea. Together, these economies have a combined weight of 66% of regional income.
In 2005, growth in PRC of 9.9% comes after back-to-back years of double-digit expansion. Booming exports and investment continued to propel demand, and growth of industrial output accelerated.
The Chinese government is now targeting a slower growth trajectory for the economy as it intends to focus on some of the social and environmental stresses that have emerged as a consequence of rapid economic expansion in recent years. PRC growth is forecast to ease to 9.5% in 2006, softening further to about 8.8% in 2007, according to ADO.
In India, growth surged to 8.1% in 2005, underpinned by strong performances in industry and services, and a rebound in agriculture from a weak performance in 2004. Although South Korean growth slipped in 2005, consumption demand recovered in the latter part of the year to lift the annual average to 4%.
India has ambitions to lift its growth rate to over 9% in the medium term. This is likely to require an increase the ratio of its investment to GDP and that it raise capital productivity. Both will need determined reform efforts, ADO says.
India's economy is forecast to grow 7.6% in fiscal year (FY) 2006 and 7.8% in FY2007, slightly below the expected medium-term rate of growth. Growth, particularly in consumption and investment, will be held back by the fuel price adjustment process, which is likely to boost inflation. Rising interest rates will have some modest negative effects on investment, ADO says.
In Southeast Asia, overall growth is expected to change little from the 5.5% expansion in 2005, but with a checkered pattern across countries. Indonesia's growth may slow in 2006 as domestic demand is pinched by higher interest rates, but Thailand's economy should recover as the impact of the tsunami and a bad agricultural harvest in 2005 recede.
Developing Asia's trade surplus with the rest of the world widened by $52 billion in 2005 to $192 billion, with the PRC's trade balance alone widening by about $74 billion. In Southeast Asia, an overall rise in the current account surplus disguised a widening trade deficit in both the Philippines and Thailand. Central Asia posted a 75% increase in its trade surplus as a result of higher oil prices, and in South Asia trade deficits widened in all countries but Nepal.
Developing Asia will continue to run a large current account surplus with the rest of the world in 2006 and 2007, but there is already evidence of some adjustment, with domestic demand picking up and growth of international reserves slowing, ADO notes.
"Asia is well-positioned for sustained growth over the medium. The region is favored by geography, demographics, and the conviction among leading policymakers that integration with the global economy will strengthen the region," says Mr. Ali.
The profile of risks facing developing Asia remains much as before, but these risks are probably more accentuated, says ADO. A disorderly unraveling of global payment imbalances, a jump of the HN51 virus (avian flu) to people, yet higher oil prices, or a surge in trade protectionism would unsettle the outlook.
ADO 2006 provides an assessment of recent economic performance for 43 developing member countries, and projections for major macroeconomic indicators for 2006 and 2007. This year's ADO features a new format for country chapters, including an expanded graphical presentation of information and a review of medium term (2006-2010) opportunities and constraints facing the region. It also includes a special chapter, Routes for Asia's Trade, which explores future opportunities for Asia's trade.
Contact
David Kruger
Email: dkruger@adb.org
Tel:+632 632 5204; +63 916 767 3671
Graham Dwyer
Email: gdwyer@adb.org
Tel:+632 632 5253; +632 898 3413; +63 915 741 4363
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