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Regional Bank Forecasts Stronger Growth for Developing Asian Economies  - 2004-09-22


A new report says developing Asian economies are expected to enjoy stronger growth despite high oil prices. However, the report warns, a slowdown in China could hurt its neighbors.

The Asian Development Bank has raised its growth forecast for Asia's developing economies to seven percent this year. Earlier, the ADB had forecast growth at 6.8 percent.

Ifzal Ali, the bank's chief economist, says the upgrade was due to the strong economic performance in major industrial nations and robust trade within Asia.

"We find that for the first time after the Asian financial crisis in Southeast Asia," he said, " business investments have picked up very significantly. In addition, we have continued buoyancy in household consumption."

Southeast Asia and East Asia, including China, are enjoying strong export demand, while petroleum-exporting Central Asian republics are gaining from high oil prices.

But economic growth for next year will slow down slightly to 6.2 percent mainly because of expected slower growth in India, Korea, Taiwan and China. Earlier, the ADB had expected growth of 6.7 percent in 2005.

But the non-profit development institution warns that persistently high oil prices could trigger inflation and that would curtail growth in oil dependent economies. Asia now imports more than 44 percent of its oil needs. Crude oil is trading at about 46 dollars a barrel.

The rosy economic projection also could change if China's economy significantly slows down. Mr. Ali says greater links between other Asian economies and China have made the rest of the region more vulnerable to changes in China's economic prospects.

"If there were to be a hard landing in China in terms of (a) sharp decrease in the growth of fixed asset and investment, this would lead to a GDP growth of about six percent (for China) in 2005.This in turn would have a negative impact on exports from the rest of the region to China," he said.

He says Hong Kong would be most affected, followed by Taiwan, Korea and Singapore.

For South Asia, the bank says erratic monsoon rains and severe flooding in some areas have hurt agricultural production. Moreover, Mr. Ali says there are signs of creeping inflation in India.

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