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ADB Forecasts Continued Growth in Asia Over Next Three Years

Asia's developing economies grew at the fastest rate in eight years, and the Asian Development Bank says growth should remain strong over the next few years. However, there are risks ahead.

The Asian Development Bank's top economist calls last year's growth in developing Asian economies a "remarkable performance". Almost all of the region's economies expanded by more than five percent in 2004 - by far the best performance since the Asian economic crisis of 1997 plunged many countries into a long recession.

At a news conference in Hong Kong Wednesday, economist Ifzal Ali presented the ADB's outlook for Asia's developing economies over the next three years. The non-profit, multi-lateral lending institution expects overall gross domestic product in the region to expand by at least six and a half percent a year through 2007.

Mr. Ali says steadily growing exports to industrialized countries and within Asia, healthy foreign exchange reserves and improved business sentiment are boosting the region's finances. "The quality of growth improved in 2004 by a remarkable revival of business investment in East Asia, in Southeast Asia, as well as in South Asia," he said.

The region could face challenges, however, because of inflationary pressures around the world and global imbalances in growth and trade. Mr. Ali warned that if European and Japanese growth remain sluggish, the United States trade deficit could grow, which could force the dollar to weaken and U.S. interest rates to rise. That could cut U.S. demand for Asian products, hurting the region's export growth.

He also warns that Asia continues to be vulnerable to outbreaks of disease, such as bird flu, and to natural disasters such as last December's earthquake and tsunami. The tsunami forced more than two million people in Indian Ocean nations into poverty. However, Mr. Ali says the damage to the region's overall economy will be modest, because the disaster was confined to smaller coastal communities, leaving industry and major agricultural areas untouched.

While high prices for oil and natural gas could slow growth in many countries, some Central Asian economies should benefit. The ADB report forecasts double-digit annual growth for Azerbaijan over the next three years, while Kazakhstan should see growth averaging eight percent or more.

The challenge for these countries, Mr. Ali says, is to convert their oil and gas reserves into broader economic benefits. "The challenge is to diversify these economies, particularly to create employment opportunities for people, because these employment opportunities don't exist in those resource-intensive industries which are highly capital intensive," said Mr. Ali.

In South Asia, while economic growth was strong last year, it shrank slightly from 2003 - partly because of slower agriculture gains in India caused by a poor rains. Still, Mr. Ali says the region can expect steady growth in the coming years, particularly if its political risks are contained. Those risks include a possible collapse of the peace process between rivals India and Pakistan, increased political instability in Nepal, and a crumbling of Sri Lanka's fragile cease-fire with separatist Tamil rebels.

"South Asia as whole would gain immensely if we can have peace and social stability in the sub-continent, which would enable countries to focus on the real development issues," said Mr. Ali.

For much of Asia, the big question is how China will perform. The ADB says China's growth should slow to about 8.5 percent this year, from 9.5 percent last year. Mr. Ali says if that happens, China can avoid sparking inflation and financial instability, yet still create new jobs and continue to buy goods from its Asian neighbors.

However, a more rapid slump in China could cause considerable pain.

"It will impact very negatively because these economies export huge quantities to China," said Mr. Ali. "So [if it happens] it is going to be fairly significant."

Mr. Ali also says the Asian economies have a role to play in helping resolve global economic imbalances. If Asian consumption continues to rise and regional business investment expands, that could help U.S. exports and reduce pressure on interest rates and currency exchange rates.