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Economists View India, China as Driving Risky Regional Growth


Two key economic agencies are upbeat over the economic outlook for the Asia-Pacific region, largely because of growth in China and India. They warn of clouds on the horizon - higher interest rates and possible volatility in the financial markets.

The Asia Development Bank says the booming India and China economies will drive growth in Asia's developing nations to an average of 7.7 percent this year, a half-point increase from its earlier forecast.

A new A.D.B. report said the faster growth is occurring despite high oil prices and rising interest rates in many countries.

Ifzal Ali is the chief economist for the Asian Development Bank, a non-profit lending institution in Manila.

"Exports have been very strong from the region, industrial production has been strong, and portfolio investment as well as foreign direct investment have come into the region in very significant quantities," Ali said. "So the higher oil prices, our countries have basically been able to pay for them without too much difficulty."

The A.D.B. expects China's economy to grow by 10.4 percent this year, up from an earlier forecast of 9.5 percent. India should expand by a stronger than expected 7.8 percent.

The A.D.B. says that efforts by the Chinese government to moderate growth had only mixed results. Its report warns that if the investment boom continues, it could lead to dangerous over capacity and inflation, which could hurt China's economy.

Economists from U.N. Economic and Social Commission for Asia and the Pacific - U.N.-ESCAP - also issued an upbeat outlook for the regional economy.

But a U.N.-ESCAP economist in Bangkok, Shamika Sirimanne, says that higher energy prices add to the burden of millions of impoverished people in the region.

"The urban poor has been affected significantly in many of the countries of the region because they use public transportation, they rely on electricity, they rely on other public services that are oil-based - and this group has been affected," Sirimanne said.

And despite forecasts for continued growth in Asia next year, there are risks ahead.

The A.D.B.'s Ali says U.S. efforts to control inflation could have serious ramifications for Asia, which depends on a strong American economy to soak up Asian exports.

"If interest rates are tightened too quickly, growth could come to a grinding halt. If not enough is done, inflationary expectations could build up and that could lead to speculative activities in the financial markets, which ... could be destabilizing," Ali said.

Both the Asian Development Bank and the U.N. Economic and Social Commission for Asia and the Pacific warn the large U.S. trade and budget deficits pose a risk to the global economy. If investors lose confidence in the U.S. economy, the dollar could weaken sharply and growth would stall.

Growth in Asia is not expected to be even. The Asian Development Bank says that political uncertainty in Thailand has weakened investor and consumer confidence, so growth there is expected to slow this year. In Malaysia, an expected slowing in electronics exports and cautious consumers also will trim growth slightly.

But Pakistan and Bangladesh are expected to show strong growth this year and next.