ECONOMY: East Asia Emerging from Crisis but Vulnerable – Bank

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Oct 17 2002 (IPS) - Despite a stuttering world economy, East Asia is on track for a moderate economic rebound this year and in 2003, but faces risks from a slowdown in industrialised nations and a possible U.S.-Iraq war, says the Asian Development Bank (ADB).

Exports and domestic demand have driven East Asia’s economic recovery, which started in the first quarter of this year and continued in the second and third quarters, said the regional bank in its report, ‘Growth and Recovery in 2002’, released Thursday.

The Bank forecasts East Asia’s gross domestic product (GDP) growth to reach six percent in 2002 and 5.9 percent in 2003.

China, Asia’s second largest economy, will continue to be the fastest growing country in the region with expected growth of 7.7 percent this year and 7.5 percent next year.

The report projects growing private capital flows to the region, especially next year, despite earlier forecasts by the Institute of International Finance that capital flows to emerging markets are declining.

Capital investment in emerging markets in Asia and Pacific is projected to increase to 60.3 billion U.S. dollars from 53.4 billion dollars in 2001, it says.

For the countries covered in the report – China, South Korea, Indonesia, Malaysia, Philippines, Singapore, and Thailand – GDP growth accelerated in the second quarter to 6.2 percent. Growth in the first quarter was 5.3 percent, compared to 4.3 percent for the whole of 2001.

Second-quarter growth ranged from 3.5 percent in Indonesia (up from 2.2 percent in the first quarter) to 8 percent in China (up from 7.6 percent), with Korea managing an impressive 6.3 percent growth (compared to 5.8 percent).

The second quarter acceleration was particularly marked for the more open economies, such as Singapore (from 1.5 percent to 3.7 percent) and Malaysia (from 1.1 percent to 3.8 percent), says the report.

It also complimented most countries for making progress in restructuring and reforming their financial and corporate sectors.

The report, which was mostly written before Saturday’s terrorist attack against tourists on the Indonesian island of Bali, says that the region’s performance this year still compares favourably with stock markets in industrial countries as well as those in most other emerging markets around the world.

The car bomb attack took the lives of more than 180 night clubbers, prompting warnings that terrorism in the area could drag down the region’s economies.

Kenneth Rogoff, chief economist of the International Monetary Fund (IMF), warned in Singapore this week that substantial risks remained for the region’s economies, primarily because terrorism was "slowing the gains from increased globalisation”.

The attack comes at a critical time – just as many Asian countries are completing a long recovery from the severe economic crisis of the late 1990s.

Already, travel and tourism companies are reeling from the Bali incident, and Indonesia says the attack could tarnish the year’s healthy economic performance as tourists avoid the country and investors postpone their plans.

The report said that the projected six percent GDP growth faces two main threats.

The first comes from lower than expected growth in industrial countries, which are a major source of growth for East Asia.

”Not only will the region’s export prospects be vastly diminished, but the regional equity markets, which until now have shown some resilience to the global stock market slide, will come under heightened pressure,” said the report. ”This, in turn, will adversely affect domestic demand.”

Secondly, risk of U.S.-led military action against Iraq heightened uncertainty and could spur oil prices upwards.

”Apart from the uncertainty about the possible conflict and the damaging consequences for investors across the globe, the first reaction to such an event would be a sharp increase in international oil prices, as happened in 1990 when the Gulf War started,” said the report.

The Bank said countries should closely monitor the emerging external environment, and be ready with what it called ”appropriate fiscal and monetary responses” should export prospects deteriorate sharply.

It also recommended that countries push ahead with financial and corporate restructuring and reform in order to improve resilience to external shocks.

ECONOMY: East Asia Emerging from Crisis but Vulnerable – Bank

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Oct 17 2002 (IPS) - Despite a stuttering world economy, East Asia is on track for a moderate economic rebound this year and in 2003, but faces risks from a slowdown in industrialised nations and a possible U.S.-Iraq war, says the Asian Development Bank (ADB).
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