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Asian Development Bank Forecasts Robust Economic Growth for Developing Asia This Year

  • Douglas Bakshian

The Asian Development Bank expects robust economic growth to continue in developing Asian nations this year, although a bit more slowly than in 2006. The bank credits strengthening domestic demand, waning inflation, and the recent slide in oil prices for the healthy picture. Douglas Bakshian has more from Manila, where the ADB has its headquarters.

In its Outlook 2007 report, the ADB forecasts 7.6 percent growth for developing Asian economies this year. This is slightly lower than the 8.3 percent rate for 2006, which was the fastest rate in more than a decade.

The ADB predicts that inflation will ease slightly this year, to an average of three percent.

As usual, the two Asian giants, China and India, were the major drivers of the regional economy, accounting for more than two-thirds of the growth in 2006.

The ADB's principal economist, Jesus Felipe, says future growth in China and India is likely to slow.

"It is very difficult for these two economies to continue growing at the rates that they did in 2006. And authorities in these countries are concerned about these high growth rates, in particular in China," he said.

This year the bank foresees a slightly slower growth rate for China, at 10 percent. The ADB notes that China is trying to restrain investment in fixed assets, largely in machinery and buildings. But the report also notes that it might be difficult to control spending as the country finishes preparations for next year's Olympic Games.

For India the ADB projects an 8 percent growth rate this year, slower than in 2006. The report mentions the slowing pace of economic reforms, and sluggish agricultural productivity in a country where most people still depend of farming for a living.

The ADB says there was an increase in inflation in India caused by rising property prices and rapid credit growth, but the Indian central bank has taken steps to try to control the property market.

Turning to Southeast Asia, the bank foresees 5.6 percent growth this year, and slightly more in 2008. It predicts Indonesia will get a boost from lower inflation and interest rates. It expects Cambodia, Laos, and Vietnam to grow briskly.

There is uncertainty in parts in Southeast Asia because of political problems. In Thailand, where the military took power last year, the ADB says business and consumer confidence is slipping, and growth is expected to slow. The ADB notes that the military-installed interim government has sent confusing messages to international investors, which has affected the Thai stock market.

In Bangladesh, the bank says conditions for doing business could improve if the anti-corruption and reform initiatives taken by the caretaker government continue.

The report also says developing Asia can make better use of its huge international reserves, which exceeded two trillion dollars at the end of last year. The ADB calculates that if 50 percent of these reserves were invested in a global portfolio with a return of only one half of one percent more than at present, this could generate an extra $50 billion in income.

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