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Date: Mon, 17 Sep 2007 15:47:21 -0400 (EDT)
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ADB raises economic forecast for developing Asia thanks to robust growth in China, India
The Associated Press
Monday, September 17, 2007
Exceptional growth in China and India prompted the Asian Development Bank on Monday to raise its economic growth forecast for developing Asia this year to a collective 8.3 percent from 7.6 percent.
The Manila-based lender also raised its forecast for 2008 from 7.7 percent to 8.2 percent, but warned that the improved prospects for the region have pitfalls, including volatile oil prices and the impact of credit market strains on the U.S. economy, a key export market.
"This reassessment stems from the exceptionally strong performance of Asia's giants â€" the People's Republic Of China and India," said Ifzal Ali, the ADB's chief economist.
"The headline numbers for 2007 have also been lifted by faster-than-expected growth in Indonesia and the Philippines," he said.
China and India make up 55.3 percent of developing Asia's total gross domestic product. China's economy grew 11.5 percent in the first half of 2007, its fastest rate in 13 years, and India expanded 9.3 percent in the first quarter.
Without the two giants, the rest of Asia is forecast to post 5.7 percent growth in 2007, and 5.6 percent in 2008.
China's annual growth forecast was raised to 11.2 percent from 10 percent. In 2008, China is seen expanding 10.8 percent.
Ali warned that rapid growth in fixed asset investment, exports and consumption in China were leading to an overheated economy. Rising inflation has led to a jump in lending rates, and "this tightening will also lead to a pressure to depreciate the currency," he said.
China needs to restrain investment growth, rebalance disparities in its economy, lift private consumption and tackle inflation if growth is to be maintained, Ali said.
India, meanwhile, is expected to grow 8.5 percent in the fiscal year through March 2008, and again the following fiscal year.
"South Asia at this juncture is particularly vulnerable to political instability," Ali said, noting major signs of political instability in Pakistan and an interim government in Bangladesh.
But the subcontinent is probably the least vulnerable to the gyrations in the international credit markets because the economies in South Asia are basically closed markets whose growth are fueled by domestic demand, he said.
"Developing Asia's defenses against external shocks are solid and it can weather a slowdown in the United States," said Ali. "The region's growth prospects will continue to depend on how well the countries address their internal challenges."
The report said a possible U.S. recession, depending on its timing, could trim Asia's growth by 1 percentage point to 2 percentage points.
"While a cold in the United States may definitely lead to maybe some kind of flu in our part of the world, it's not going to lead to pneumonia," Ali said.
The report said a replay of the 1997 Asian financial crisis was unlikely because Asia's reserves provide a strong buffer against external shocks, domestic financial institutions are stronger and the corporate sector has reduced its exposure to debt.
Southeast Asia is now expected to grow at 6.1 percent this year, with Vietnam seeing expanding 8.3 percent.
The bank also raised its forecast for Philippine growth to 6.6 percent due to its fastest first-half growth in almost 20 years.
Indonesia continues to edge up and is now expected to post 6.2 percent growth in 2007, while growth in Thailand is expected to be close to an earlier estimate of 4 percent as political uncertainties continue to undermine consumer and private investment confidence, the bank said.
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On the Net:
Asian Development Bank: <a href="http://www.adb.org">http://www.adb.org
http://www.iht.com/articles/ap/2007/09/17/business/AS-FIN-ECO-Asia-Economic-Outlook.php
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