Developing Asian economies will register solid economic growth in 2007, driven by fast growth in the People’s Republic of China (PRC) and India, the Asian Development Bank (ADB) says in a new major report.
The PRC and India, which together account for 55.3% of the total gross domestic product (GDP) in developing Asia, recorded their fastest growth in 13 years in the first half of 2007 and 18 years in fiscal year 2006, respectively.
The Asian Development Outlook 2007 Update (ADO Update) says growth in Asia is now more broad-based as other regions like South Asia and Central Asia continue to post robust growth, and growth accelerates in other economies, such as Indonesia and the Philippines.
The report, however, warns that economic outlook for 2008 is hazy as uncertainty reigns in global financial markets and worries about the health of the U.S. economy mount.
The ADO Update foresees growth in Asia and the Pacific of 8.3% in 2007, up from an earlier estimate of 7.6%. Provided the global economy steadies, growth of 8.2% is anticipated in 2008.
While the jury is still out on the events unfolding in credit markets and the broader global economy, a sharp dive in Asia’s economic growth still seems unlikely, it says.
"Developing Asia’s defenses against external shocks are solid and it can weather a slowdown in the United States. The region’s growth prospects will continue to depend on how well the countries address their internal challenges," says Ifzal Ali, Chief Economist of the Manila-based multilateral development bank.
The ADO Update says global risks to economic outlook now appear accentuated. It highlights that developing Asia would surely suffer if the US economy slows abruptly, though the impact may be modest and short lived.
The report also lists avian flu, geopolitical and security risks in some parts of the region and political uncertainty in a few countries as downside risks obscuring the outlook for a number of economies.
East Asia is now expected to grow by 8.9% in 2007. The ADO Update lifts growth forecast for the PRC to 11.2% this year. It expects brisk exports, strong investment and buoyant consumption to drive economic growth to 10.8% in 2008, an upward revision from the 9.8% projection in March.
South Asia, which continues to consolidate on its progress of recent years, is expected to grow at 8.1% in 2007. Potential growth rates in Bangladesh, India and Pakistan now appear to be on a more stable trajectory. The ADO Update projects India’s economy to expand by 8.5% in 2007 and 2008.
Southeast Asia as a whole is now expected to grow at 6.1% in 2007. Private sector dynamism will help Viet Nam to post a scorching growth of 8.3% in 2007, while Philippines’ growth forecast is now upgraded to 6.6% in 2007 after the country registered its fastest first-half growth in almost 20 years.
Growth in Indonesia continues to edge up and is now expected at 6.2% in 2007. Growth in Thailand is expected to be close to the earlier estimate of 4% in 2007 as political uncertainty continues to undermine consumer and private investment confidence.
Central Asia’s growth estimates for 2007 has been raised to 11.1% as high oil prices and mineral exports continue to support economic expansion in the region.
The ADO Update downgrades the 2007 growth projection for Pacific Islands to 3.5% from 4.5% as an expected economic rebound in Timor-Leste has not been as strong as anticipated and the economic fallout in Fiji Islands has been more accentuated than expected.
The flagship economic report says while inflationary pressures emerged in some parts of the region in 2007, prospects for inflation in 2008 are difficult to predict as uncertainty shrouds the global economy. If growth turns out to be slower than anticipated, inflation could come down more quickly.