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ECONOMY: Asian Bank Cuts Growth Forecast on Fears of Iraq War
By Emad Mekay
WASHINGTON, Feb 10 (IPS) - The Asian Development Bank (ADB) has cut its growth forecast for East Asian economies amid fears that a war in Iraq and potentially higher oil prices could put the brakes on an already slowing world economy.
The bank's quarterly Asia Economic Monitor (AEM), now forecasts 5.6 percent growth, down from 5.9 percent in October 2002 and 6.3 percent in July last year, due partly to increased downside risks, ''especially in light of mounting tensions over Iraq''.
The other main reason given by the Manila-based regional donor for the revision is that growth forecasts for industrial countries, the main markets for exports from the region, have been marked down.
The United States and its allies are massing troops in the oil-rich Gulf region for a possible war on Iraq in a bid to remove President Saddam Hussein from power and disarm the country of its alleged weapons of mass destruction.
The threat of war has dampened the global economic outlook, with many countries fearing the impact of a destabilised Middle East and higher oil prices..
Most economists say that a military invasion of Iraq could propel oil prices to shoot up, but they disagree on how long the hike would last.
Officials from the group of seven most industrialised countries (G7) - France, Japan, Canada, Germany, the United Kingdom, Italy and the United States - will reportedly discuss plans later this month in Paris to prepare their economies for the possible war. The conflict's impact on East Asia will likely be part of the agenda.
''The possibility of a war in Iraq remains a key risk,'' said the ADB in its report released Monday.
Tensions over Iraq have already led to a decline in business and consumer confidence and boosted oil prices to a two-year high, said the bank.
''But the impact of any war there would depend on its scale and duration,'' the report added, saying that a short military operation could lead to only a temporary spike in oil prices followed by a sharp decline.
"On the other hand, a drawn-out war that inflicts extensive damage to Middle East oil fields would have a more adverse impact on global economic growth and East Asia's growth prospects,'' said the forecast.
"The recent worsening of the external environment will impinge on East Asia's economic prospects for 2003, causing forecasters to mark down their projections," said Yoshihiro Iwasaki head of the REMU in a statement on the ADB website.
Among Asia's biggest economies, the most drastic downward revisions of growth for 2003 are in Singapore, whose gross domestic product (GDP) growth is expected to fall from 4.7 percent to 3.8 percent, followed by the Republic of Korea, expected to drop from 5.6 percent to five percent.
Malaysia's growth is seen falling from 5.2 percent to 4.7 percent while Indonesia will slow to 3.6 percent from four percent.
Growth forecasts for the People's Republic of China, Thailand, and Philippines are largely unchanged at 7.5 percent, 4.1 percent, and 3.9 percent respectively.
In October, the ADB said that despite a stumbling world economy, East Asia was on track for a moderate economic recovery in 2003 ¡ making it the only promising region in the world.
Amid global uncertainties, the 12 countries of East Asia still collectively managed to post faster-than-expected - but moderate - growth last year, reaching an estimated 6.1 percent.
"Last year's growth represented a modest economic rebound from the slowdown in 2001. East Asia weathered the global difficulties reasonably well," said Iwasaki.
Manufacturing dominated the growth rebound well up to the third quarter of last year - the latest for which such data are available. The exception was the Philippines, where last year's GDP growth was driven mainly by the services sector, with manufacturing and agriculture playing a complementary role, said the ADB.
The countries covered in the report are Brunei, Cambodia, China, Indonesia, South Korea, Laos, Myanmar, Malaysia, the Philippines, Singapore, Thailand and Vietnam.
(END/2003)
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